Volkswagen AG Annual Report 2007 · 2020-04-14 · This version of the Annual Report is a translation of the German original. The German text is authoritative. VOLKSWAGEN GROUP Volume

A N N U A L R E P O R T 2 0 0 7

Driving ideas.

This version of the Annual Report is a translation of the German original. The German text is authoritative.

VO L K SWAG E N G RO U P

Volume Data 1 2007 2006 %

Vehicle sales (units) 6,191,618 5,720,096 + 8.2

Production (units) 6,213,332 5,659,578 + 9.8

Employees at Dec. 31 329,305 324,875 + 1.4

Financial Data (IFRSs), € million 2007 2006 %

Sales revenue 108,897 104,875 + 3.8

Operating profit before special items 6,151 4,383 + 40.3

Special items – – 2,374 x

Operating profit 6,151 2,009 x

Profit before tax from continuing operations 6,543 1,793 x

Profit from continuing operations 4,122 1,955 x

Profit from discontinued operations – 795 x

Profit after tax 4,122 2,750 + 49.9

Cash flows from operating activities 15,662 14,470 + 8.2

Cash flows from investing activities 13,497 11,911 + 13.3

Automotive Division 2

Cash flows from operating activities 13,675 11,745 + 16.4

Cash flows from investing activities 3 6,566 6,114 + 7.4

of which: investments in property, plant and equipment 4,555 3,644 + 25.0

as a percentage of sales revenue 4.6 3.8

capitalized development costs 1,446 1,478 – 2.2

as a percentage of sales revenue 1.5 1.5

Net cash flow 7,109 5,631 + 26.2

Net liquidity at Dec. 31 13,478 7,133 + 89.0

Return ratios in % 2007 2006

Return on sales before tax (continuing operations) 6.0 1.7

Return on investment after tax (Automotive Division) 9.5 2.1

Return on equity before tax (Financial Services Division) 4 16.1 16.9

1 Including volume data for the vehicle-production investments Shanghai-Volkswagen Automotive Company Ltd. and FAW-Volkswagen Automotive Company Ltd., which are accounted for using the equity method. 2 Including allocation of consolidation adjustments between the Automotive and Financial Services divisions. 3 Excluding acquisition and disposal of equity investments: € 5,660 million (€ 5,074 million). 4 Profit before tax as a percentage of average equity (continuing operations).

VO L K SWAG E N AG

Volume Data 2007 2006 %

Vehicle sales (units) 2,365,617 2,268,830 + 4.3

Production (units) 1,075,997 953,131 + 12.9

Employees at Dec. 31 90,468 94,000 – 3.8

Financial Data (HGB), € million 2007 2006 %

Sales 55,218 53,036 + 4.1

Net income 1,455 945 + 54.0

Dividends (€)

per ordinary share 1.80 1.25

per preferred share 1.86 1.31

Key Figures

175 G R O U P C O M PA N I E S

175 Group companies that produce vehicles or offer related services are included in Volkswagen’s consolidated financial statements.

48 P R O D U C T I O N FA C I L I T I E S

The Volkswagen Group has 48 production facilities in 19 countries worldwide.

154 C O U N T R I E S

The Group’s vehicles are sold via importers and dealers in 154 countries.

329,000 E M P L O Y E E S

The Volkswagen Group employs over 329,000 people all over the world.

6.2 M I L L I O N V E H I C L E S S O L D

In 2007, the Group delivered some 6.2 millionvehicles to customers worldwide, exceeding the prior-year figure by 7.9 percent.

8 B R A N D S

8 brands from 6 European countries belong to the Group.

What moves us worldwide

PROF. DR. M ARTIN WINTERKORN, CHAIRM AN OF THE BOARD OF M ANAGEMENT OF VOLKSWAGEN AK TIENGESELLSCHAF T

“We offer mobility across all vehicle size

classes. Our brand diversity and constant

drive for outstanding performance,

innovation leadership and responsible

conduct give us a unique position in the

global market. We want to deploy all

our power and passion to leverage this

potential, reflecting what we stand for:

‘Driving Ideas.’”

14

prof. dr. martin winterkorn is interviewed by dirk maxeiner Please see page 14.

ST R AT E GY

6 Report of the Supervisory Board

10 Letter to our Shareholders

12 Board of Management of

Volkswagen Aktiengesellschaft

14 Talking toProf. Dr. Martin Winterkorn

is interviewed by Dirk Maxeiner

Contents

14 Talking toProf. Dr. Martin Winterkorn

18 “Driving ideas.”

54 A gem of a brand

F O C U S

18 What will move people tomorrow

I N N OVAT I O N

26 Diesel – pole position every dayAudi demonstrates how motor racing

and everyday technology can be a source

of inspiration for each other

30 Like pearls on a stringThe Volkswagen Group is developing intelli-

gent solutions for avoiding traffic congestion

34 Keeping Gaudí’s creative spirit aliveSEAT takes a new approach to the interplay of

design and development

“Driving ideas.”

B R A N D D I V E R S I T Y

In the enclosed brochure,

you will find an overview of all

Volkswagen Group models.

What will move people tomorrow

26 Diesel – pole position every day

68 Pride in high-qualitycraftmanship

4 CONTENT

P E R F O R M A N C E

40 Volkswagen – Das AutoA brand that has gone down in history

and that will help to shape the future

46 Volkswagen Commercial Vehicles speaks Turkish

Ethnic marketing – the innovative way

to address different customer mentalities

50 Safeguarding mobility

Volkswagen Financial Services AG ensures

affordable mobility solutions that meet all

needs and expectations

54 A gem of a brandExtreme, hot-blooded, seductive:

simply Lamborghini

58 Poised to become a world powerThe Volkswagen Group in the

subcontinent of contradictions

R E S P O N S I B I L I T Y

64 The best of both worlds

The Volkswagen

Group’s fuel strategy

68 Pride in high-quality

craftsmanshipAt Bentley, exclusivity and

responsibility are not mutually

exclusive

72 “Simply clever”

in the Czech RepublicThe secret behind the

international renown of

the ãkoda brand

Facts and Figures 2007

40 Volkswagen – Das Auto

30 Like pearls on a string

58 Poised to become a world power

D I V I S I O N S

78 Brands and Business Fields80 Volkswagen Passenger Cars82 Audi84 Škoda86 SE AT

88 Bentley90 Volkswagen Commercial Vehicles92 Financial Services

C O R P O R AT E G O V E R N A N C E

96 Corporate Governance Report100 Remuneration Report (Part of the Management Report)104 Structure and Business Activities (Part of the Management Report)108 Executive Bodies (Part of the Notes to the Consolidated Financial Statements and the Annual Financial Statements of Volkswagen AG)

M A N A G E M E N T R E P O R T

114 Business Development 122 Shares and Bonds130 Net Assets, Financial Position and

Results of Operations142 Volkswagen AG (condensed, according to German Commercial Code)146 Value-Enhancing Factors162 Risk Report 170 Report on Expected Developments

F I N A N C I A L S TAT E M E N T S 2 0 0 7

180 Consolidated Financial Statements of the Volkswagen Group

184 Notes to the Consolidated Financial Statements of the Volkswagen Group

261 Responsibility Statement262 Auditors’ Report264 Annual Financial Statements

of Volkswagen AG266 Notes to the Annual Financial Statements of Volkswagen AG293 Responsibility Statement294 Auditors’ Report

A D D I T I O N A L I N F O R M AT I O N

296 Consumption and Emission Data297 Glossary298 Index299 Contact Information

5CONTENT

During the last fiscal year, the Supervisory Board dealt regularly and in detail with the situation and the development of the Volkswagen Group. In compliance with legal requirements and the German Corporate Governance Code, we provided advice and support to the Board of Management in questions relating to the running of the Company. The Supervisory Board was consulted directly with regard to all decisions of fundamental significance to Volkswagen. Current strategic considerations were discussed with the Board of Management at regular intervals.

The Board of Management provided the Supervisory Board with regular, complete and prompt verbal and written reports on all key issues for the Volkswagen Group relating to planning, the development of business, the position of the Group including the risk situation and risk management, and current matters. Documents relevant to our decisions were always made available to us in good time prior to each Supervisory Board meeting. Furthermore, the Board of Management provided us with detailed monthly reports on the current business position and a forecast for the year as a whole. The Board of Management explained any variations from the defined plans and targets in a comprehensive verbal or written account. Reasons for these variations were discussed in detail together with the Board of Management so that suitable countermeasures could be taken if required.

In 2007, the Supervisory Board held four ordinary meetings and three extra-ordinary meetings. In addition, the constituent meeting of the Supervisory Board took place on April 19, 2007. Average attendance was 95%. All members were present at more than half of the meetings. Resolutions regarding urgent business transactions were also adopted in writing by means of a circulated document.

CO M M I T T E E AC T I V IT I E S

In order to perform its duties, the Supervisory Board has established four committees: the Presidium and the Mediation Committee in accordance with section 27(3) of the Mitbestimmungsgesetz (MitBG – German Codetermination Act) as well as the Audit Committee and the Shareholder Business Relationships Committee (A f G A). The Presidium is composed of three shareholder representatives and three employee representatives. The remaining committees are each composed of two shareholder representatives and two employee representatives. Membership of the committees at the end of 2007 is indicated in the list on page 111.

(in accordance with section 171(2) of the AktG)

Report of the Supervisory Board

Ladies and Gentlemen,

6 STR ATEGY

In 2007, the Presidium of the Supervisory Board met eight times; in particular, it prepared the resolutions by the Supervisory Board and decided on issues relating to contracts with the Board of Management.

The Mediation Committee was not required to convene during the year.Among other things, the Shareholder Business Relationships Committee supervises

Volkswagen AG’s and its Group companies’ business relationships with Volkswagen AG shareholders who hold at least 5% of voting rights. Another of its key tasks is to monitor compliance with the business processes established by the Board of Management which were put in place to structure legal relationships with shareholders in accor-dance with agreements. The Committee met four times in the reporting period.

The Audit Committee met four times in 2007. It was primarily concerned with the consolidated financial statements, risk management and the establishment of a com-pliance organization introduced by the Board of Management. The Audit Committee also dealt with the interim reports, matters relating to financial reporting and the audit of the financial statements by the auditors.

TO PI CS D I S CU SS E D BY T H E SU PE RV I S O RY B OA R D

At its meeting on January 11, 2007, the Supervisory Board appointed Prof. Dr. Jochem Heizmann as a member of the Group Board of Management with responsibility for Production and agreed to the Board of Management’s plans to place all individual Group brands on an equal, independent footing in future. In addition, we resolved to reject M A N AG’s offer to acquire Scania and instructed the Board of Management to work towards an amicable merger of M A N and Scania.

At the Supervisory Board meeting on March 2, 2007, we thoroughly examined and subsequently approved the annual financial statements of Volkswagen AG and the consolidated financial statements prepared by the Board of Management for 2006.

At the extraordinary meeting on May 11, 2007, we examined in detail the public mandatory bid by Dr. Ing. h.c. F. Porsche Aktiengesellschaft (now Porsche Automobil Holding SE) of April 30, 2007. Following this, we published our statements in accordance with section 27 of the Wertpapiererwerbs- und Übernahmegesetz (German Securities Acquisition and Takeover Act). On the basis of various financial analyses that we con-sidered, we satisfied ourselves that the fundamental valuation of Volkswagen shares is higher than the prices contained in the mandatory bid for Volkswagen AG’s ordinary and preferred shares. In light of this valuation and of the higher quoted market prices for Volkswagen ordinary and preferred shares during the period of the mandatory bid, we concluded that we could not recommend acceptance of the mandatory bid to the shareholders of Volkswagen AG. To avoid any appearance of a conf lict of interest and any possible inf luence being exerted during the resolution of this statement, the members of the Supervisory Board who are also members of the Board of Manage-ment of Porsche Automobil Holding SE and the Chairman of the Supervisory Board abstained from voting.

At its meetings on April 18, 2007, July 5, 2007, and September 7, 2007, the Super-visory Board concerned itself predominantly with strategic issues. In September 2007, the Board of Management informed the Supervisory Board of the status of talks with the Malaysian government concerning the possibility of a partnership or an invest-ment in the Malaysian car manufacturer Proton. In November 2007, the decision was taken not to pursue these talks .

On November 16, 2007, we discussed in detail the Volkswagen Group’s financial and investment planning for 2008 to 2010 and approved the Board of Management’s plans.

7REPORT OF THE SUPERVISORY BOARD

CO R P O R AT E G OV E R N A N CE A N D D ECL A R AT I O N O F CO N F O R M I T Y

The implementation of the German Corporate Governance Code at Volkswagen was the focus of our meeting on November 16, 2007. In this context, we also discussed in particular the new recommendations and suggestions published by the “Government Commission on the German Corporate Governance Code” on July 20, 2007. On Decem-ber 20, 2007, together with the Board of Management, we issued the declaration required under section 161 of the Aktiengesetz (AktG – German Stock Corporation Act) regarding compliance with the recommendations of the Code. The Board of Management and the Supervisory Board comply with all recommendations of the Code with one exception. The exception affects the recommended formation of a Nomination Committee. In the opinion of the entire Supervisory Board, such a Com-mittee would only increase the number of committees without improving the work of the Supervisory Board. The suggestion of the Code to provide for a cap on severance payments when entering into Board of Management agreements will not be complied with. Doubt is cast in professional circles on the effectiveness of such contractual clauses and this reduces the ability of the Supervisory Board of Volkswagen AG to act without, on the other hand, offering significant advantages in view of the applicable legal situation. The joint declaration of conformity by the Board of Management and the Supervisory Board is permanently available on the Volkswagen AG website at www.volkswagenag.com/ir. Further information regarding the implementation of the recommendations and suggestions of the German Corporate Governance Code can be found in our Corporate Governance Report starting on page 96 and in the Notes to the Consolidated Financial Statements on page 257.

AU D IT O F A N N UA L A N D CO N S O L I DAT E D F I N A N CI A L STAT EM E N T S

The Annual General Meeting on April 19, 2007 appointed PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft as auditors for fiscal year 2007. The auditors audited the annual financial statements of Volkswagen AG, the consoli-dated financial statements of the Volkswagen Group and the combined management report. They issued unqualified audit reports on all of these documents. The auditors also assessed the risk management system, concluding that the Board of Management had taken the measures required by section 91(2) of the AktG to ensure early detec-tion of any risks endangering the continued existence of the Company.

The documentation relating to the annual financial statements and the audit reports were made available to the members of the Audit Committee and the Supervisory Board in good time for the meetings on February 27, 2008 and February 29, 2008, respectively. At both meetings, the auditors reported extensively on the principal findings of their audit and were available to provide additional information if required.

Taking into consideration the audit reports and the discussion with the audi-tors as well as their own conclusions, the Audit Committee prepared the documents for our own review of the consolidated financial statements, the annual financial statements of Volkswagen AG and the combined management report and reported on this in our meeting on February 29, 2008. Furthermore, the Audit Committee recommended that we approve the annual financial statements. We reviewed the documents on the basis of this report and the audit report as well as in talks and discussions with the auditors. The assessment of the position of the Company and the Group presented by the Board of Management in the management report corresponds to the assessment by the Supervisory Board. At this meeting, we also discussed the question of whether a dependent company report must be prepared. A majority of Supervisory Board members resolved that no dependent company

8 STR ATEGY

report must be prepared. At our meeting on February 29, 2008, we concurred with the auditors’ findings and approved the annual financial statements prepared by the Board of Management and the consolidated financial statements. The annual financial statements are thus adopted. We reviewed the proposal on the appropriation of net profit submitted by the Board of Management, taking into account in particular the interests of the Company and its shareholders. We endorsed the proposal by the Board of Management due above all to the Company’s positive earnings trend and liquidity development.

M EM B E R S O F T H E SU PE RV I S O RY B OA R D A N D B OA R D O F M A N AG EM E N T

In the election of the employee representatives to the Supervisory Board on April 12, 2007, Peter Jacobs, Chairman of the Works Council of the Emden plant, was elected to Volkswagen AG’s Supervisory Board for the first time as the successor to Andreas Blechner and Wolfgang Ritmeier, Chairman of the Volkswagen Management Asso-ciation, was elected to Volkswagen AG’s Supervisory Board for the first time as the successor to Ulrich Neß. The remaining employee representatives on the Supervisory Board were re-elected for a further term of office.

Following the 47th Annual General Meeting, the Supervisory Board elected Prof. Dr. Ferdinand Piëch as the Chairman of the Supervisory Board at its constituent meeting on April 19, 2007.

On August 3, 2007, Heinrich Söfjer, Chairman of the Works Council of Volkswagen Commercial Vehicles, was appointed by court order as a member of Volkswagen AG’s Supervisory Board. He succeeded Günter Lenz, who resigned his membership of the Supervisory Board effective July 31, 2007.

Elke Eller left the Supervisory Board of Volkswagen AG on September 30, 2007. Babette Fröhlich was appointed by the court to succeed her as a member of the Supervisory Board effective October 25, 2007.

Dr. Wolfgang Bernhard left the Company effective January 31, 2007.Prof. Dr. Folker Weißgerber, formerly a member of Volkswagen AG’s Board of

Management, died at the age of 66 on August 25, 2007. Folker Weißgerber worked for the Company for a total of 44 years and played a significant part in the global suc-cess of the Volkswagen Group. He was a member of the Group Board of Management from March 1, 2001 to June 30, 2005, where he was responsible for Production. We will honor his memory.

We would like to thank the members of the Board of Management, the Works Council, the management and all the employees of Volkswagen AG and its affiliated companies for their efforts and achievements over the past year.

Wolfsburg, February 29, 2008

Dr. Ferdinand K. Piëch,

Chairman of the Supervisory Board

9REPORT OF THE SUPERVISORY BOARD

“ I am utterly convinced that we can be the most successful automobile manufacturer in the world in a few years.”

10 STR ATEGY

Letter to our Shareholders

Dear Shareholders,

2007 was the most successful year in the history of the Volkswagen Group – our eight strong, independent brands all recorded an outstanding performance. Excellent progress has been made with rising produc-tivity and falling costs in all plants and divisions. Our Financial Services Division also made another significant contribution to consolidated profit. Above all, however, we launched new, outstanding vehi-cles that not only received an enthusiastic reception within the automotive sector, but also among our customers.

In the past fiscal year, our eight Group brands delivered almost 6.2 million vehicles worldwide: an impressive increase of 7.9 percent and a new sales record. Growth was particularly dynamic in China, South America and Central and Eastern Europe. The Volkswagen Group’s new plants in Kaluga (Russia) and Pune (India) underline our intention to be a proactive player in these growth regions.

Our success is also ref lected in our operating profit of € 6.2 billion, up significantly on the previous year. With profit before tax of € 6.5 billion, we reached our target one year earlier than planned. In view of this, we are proposing to increase the dividend to € 1.80 for ordinary shares and € 1.86 for preferred shares.

Our shareholders have also benefited from the strong price performance of Volkswagen AG’s shares. With strong growth of 81.7 percent for ordinary shares and 76.8 percent for preferred shares, our com-pany once again outperformed the DA X (22.3 percent) significantly in 2007.

All in all, we can safely say that the Volkswagen Group is well on course to achieving its goals. We are one of the most forward-looking companies in our sector, with an internationally unique range of brands and models. This is above all due to the skill and commitment of our employees, for which my colleagues on the Board of Management and I would like to express our sincere thanks. For us, innovation, per for-mance and responsibility for the environment and society are inseparably linked. These values are what drives the successful development of the Volkswagen Group, and are ref lected throughout the 2007 Annual Report.

Our objective remains to inspire our customers with fascinating vehicles and outstanding vehicle-related services. We also strive to offer our employees stimulating and secure jobs. Last but by no means least, we want to convince our shareholders with strong, profitable growth. By further improving our cost position, we will be able to ensure even greater profitability in future years.

I can assure you that the Volkswagen Group will continue this successful course with the same drive and commitment in years to come. We look forward to continuing this journey in your company.

Yours sincerely,

Martin Winterkorn

11LET TER TO OUR SHAREHOLDERS

Board of Management of Volkswagen Aktiengesellschaft

STR ATEGY12

from left: PRO F. D R . R E R . P O L . J O CH EM H E I Z M A N N

Production

D R . R E R . P O L . H O R ST N EUM A N NHuman Resources and Organization

F R A N CI S CO JAV I E R G A RCI A SA NZProcurement

BOARD OF M ANAGEMENT OF VOLK SWAGEN AK TIENGESELL SCHAF T

BRIEF BIOGR APHIESwww.volkswagenag.com > The Group > Senior Management > Management Board

PRO F. D R . R E R . N AT. M A R T I N WI N T E R KO R NChairman of the Board of Management of Volkswagen Aktiengesellschaft,

Research and Development, Sales

D I PL . WI R T S CH .- I N G . H A N S D I E T E R P ÖT S CHFinance and Controlling

13

“We are the world’s most fascinating automobile manufacturer.”

dirk maxeiner: Dr. Winterkorn, it is your stated goal to overtake Toyota as the

world’s most successful automaker. Have you not bitten off more than you can chew?

prof. dr. winterkorn: I firmly believe that the Volkswagen Group is the most for-ward-looking company in the automobile sector. In terms of innovative strength, design, precision and quality we are already better than our Japanese competitors. But we’re also aiming to top the tables as far as customer satisfaction, sales and re-turns are concerned. We laid the foundations for doing that last year.

What exactly does that mean?

Well, to start with we’re working very hard on making both the Group as a whole and the Volkswagen brand in particular more profitable. A more return-oriented approach, better processes, higher sales performance – these are all measures that are already translating into excellent figures. And we’ve also launched an as yet unmatched model offensive. The Volkswagen Group will be introducing 20 further models over the next 36 months. On top of that, there will be the successors to exist -ing vehicles, such as the new Golf V I. We are intensifying our activities in segments like SU Vs, pick-ups and vans, where we were hardly present in the past. If you look to US automakers, you can see what happens when an automobile manufacturer doesn’t make an intensive commitment to developing new models.

Dirk Maxeiner, freelance

publisher and columnist

for DIE WELT newspaper,

talks to the Chairman of

the Board of Management

Prof. Dr. Martin Winterkorn

about the future of the

Volkswagen Group and the

fascination of automobile

brands.

14 STR ATEGY

New products are one aspect, but where is demand supposed to come from?

Your established markets are pretty sluggish, aren’t they?

With a differentiated product offering we can set new trends and win market shares in countries such as Germany and the US A . A good example is the Volkswagen Tiguan which immediately catapulted to the top following its market launch, becoming a best-seller in the SU V segment. But it’s also correct to say that our growth chief ly comes from markets such as China, India, Brazil or Russia. These are markets where the thirst for mobility is enormous. That’s why we’re developing these markets with very specific measures such as new plants, supplier networks and sales companies.

You’re hardly likely to succeed with your traditional vehicle program.

That’s correct. It’s vital that our vehicles are very carefully tailored to the regional needs of customers. The “global car” is well and truly a thing of the past. If we look at India, for instance, this means we must build small, very inexpensive cars which are nevertheless convincing in terms of quality, customer benefit and environmental compatibility. One example is our New Small Family, which we presented as a study in 2007. We will be building a version of the up! for metropolitan areas in Western countries as well as variants specially designed for emerging markets. That brings us a potential sales volume of 500,000 cars per year in the long term.

What is your response to the criticism leveled by some that Volkswagen has missed

the boat as far as CO2 and environmentally compatible vehicles are concerned?

I would suggest that those critics take a good look at the facts. We launched the very first three-liter cars as early as the late 1990s with the Lupo and the Audi A 2. Not only that – the Audi duo introduced in 1997 was the first series production hybrid vehicle in Europe.

Production of all these models has been terminated …

Environmental innovations have to be accepted by our customers, too. So the price is an important factor. That’s why we’re focusing closely on optimizing the Volkswagen TDI and TSI engines or Audi’s TFSI technology. Volkswagen’s BlueMotion series, Audi’s e-models, SEAT’s Ecomotive line or Škoda’s GreenLine vehicles already cut

15TALKING TO

consumption quite significantly without sacrificing driving pleasure. We’re looking towards the future, too: we’re making massive investment in second-generation bio-fuels. And we’re working on series maturity for alternative drivetrain techno logies such as hybrid engines, fuel cells or plug-in electric systems which are recharged by connec ting a plug to a regenerative electric power source.

What about the USA, where Volkswagen used to be a cult?

There isn’t much of that left now ...

We hit the reset button in the USA last year. We’re moving closer to our dealers, closer to our customers. That’s the only way we can really play a dominant role as the largest European importer – as T H E German automaker – and follow up the successes of the Beetle era and the T2. I believe this also calls for production in the Dollar area. But more important still, it requires the right products. These have to be products which are fine-tuned to the wants of American customers – design, equipment and, of course, price.

Should I be buying Volkswagen shares now?

Our share price ref lects the success of our Group. We were the listed automaker with the best share price development in 2007. We will resolutely continue to press ahead with our profitable growth course. We are investing in our future with great care and deliberation, using sound judgment and deploying our own resources. At the same time, we are keeping a close watch on costs. We have laid the foundation to make the Volkswagen Group a jewel for its shareholders in coming years and to create sustain-able value.

That sounds good. But how does it relate to today?

We’re already in a position to develop and produce our vehicles much more efficiently today. Our modular component system gives us a completely different grip on devel-opment costs, procurement costs and production costs. We can only survive compe-tition if we get all our costs and processes right. And we’re working f lat out on that throughout the company.

“ We have launched an as yet unmatched model offensive.”

16 STR ATEGY

How are you going to inspire your employees to join you?

Our employees play a key role. We need a top team to shape the future. We need people who take pride in their work, who are proud of the vehicles they build. Our most valu-able asset is the potential and creativity in the hearts and minds of our workforce. We’re already making good progress here. But we need the best designers, engineers, technicians, commercial staff and marketing professionals. The Volkswagen Group must become the first choice for the top talents in our industry. That’s why developing young potentials and our reputation as an attractive employer are right at the top of our agenda.

You’ve set the benchmark for the Group and its brands very high.

What makes you so certain you will achieve your goals?

For me, the Volkswagen Group is today the world’s most fascinating automobile manufacturer. We cover the entire product spectrum, from the inexpensive compact car through the super sports car to the 40 -tonne truck. A nd, apart from us, who else brings together eight brands under one roof so successfully? Each of these brands is a veritable gem in its own right with a strong independent profile. I don’t think we need be afraid of any competitor.

Would you risk making a forecast and telling me where you think the Volkswagen

Group will be ten years from now?

This company, its brands, and above all its people have almost inexhaustible potential. Our ideas, our know-how, the synergies we have yet to leverage: all this gives us con-fidence to master the challenges that lie ahead. Ten years from now we will be the benchmark when it comes to customer satisfaction, attractiveness as an employer, quality, returns, and also our commitment to the environment and society.

D I R K M A X E I N E R ,

born in 1953, is a freelance

publisher and columnist for

DIE WELT newspaper. His

newspaper articles and books

often discuss whether our

society still demonstrates

a sufficiently open attitude

to technical and scientific

progress.

Maxeiner was awarded the

Ludwig-Erhard prize for eco-

nomic publications, two of

his books (“Öko-Optimismus”

and “Life Counts”) were named

“Wissenschaftsbuch des

Jahres”.

TEX T AND INTERVIEWDirk Maxeiner

“ Our eight strong brands don’t need to be afraid of any competitor.”

17TALKING TO

18 “Driving ideas.” – What will move people tomorrow

26 Diesel – pole position every day

30 Like pearls on a string

34 Keeping Gaudí’s creative spirit alive

40 Volkswagen – Das Auto

46 Volkswagen Commercial Vehicles speaks Turkish

50 Safeguarding mobility

54 A gem of a brand

58 Poised to become a world power

64 The best of both worlds

68 Pride in high-quality craftsmanship

72 “Simply clever” in the Czech Republic

“Driving ideas.”

We have the creative potential, the know-how and the power to transform ideas into innovative, high-performance vehicles in all size classes. In doing so, we take on board the needs of people and the environment at all times.

eedless to say, the ideas and actions of Europe’s largest vehicle producer focus squarely on automobiles. However, the

Volkswagen Group is aiming higher: under the slogan “Driving ideas.”, the global company and its eight brands are taking the challenges of the future head on – with their sights set far beyond the scope of automobile manufacturing alone.

Technology, environment and people are the main areas that will determine future mobility. Striking an acceptable balance between individual mobility needs, environmental demands and economic expectations is no mean feat. With its “Driving ideas.” initiative, the Volkswagen Group is endeav-oring to harmonize these seemingly conf licting goals.

After all, for a company like Volkswagen, economic success is based on how its ecological and social

responsibility is perceived. This view is shared by more and more customers – but also shareholders and employees around the globe – and “sustaina-bility” is now the watchword for corporate manage-ment.

“Driving ideas.” – developing and testing a constant stream of new concepts, but in such a way that future users will already be able to experience the benefits of innovative technology today. For exam-ple, last year’s “Urban Challenge 2007” in the USA featured computer-controlled robot cars capable of maneuvering through 100 kilometers of simulated city traffic without a human driver at the wheel. Three years after Touareg prototype “Stanley” was first past the finishing line of a similar race, the Volkswagen Passat known as “Junior” – which was equipped with intelligent software, laser and radar technology – finished in a still-impressive second place.

Former German Chancellor Helmut Schmidt once famously

quipped that people with visions should go and see a

doctor. However, we feel that visions are vital for rising

to the challenges of the modern world. With this in mind,

the Volkswagen Group has chosen the slogan “Driving

ideas.” for its quest to find pioneering yet practicable

answers to the mobility questions of today and tomorrow.

We see it as our responsibility to ensure that future

generations will have the same high quality of life.

“Driving ideas.” What will move people tomorrow

N

20 DRIVING IDEA S

Although it will still be some time before self-driv-ing cars such as these become a regular feature on our roads, Volkswagen Group customers are already enjoying the benefits of driver assistance systems such as Adaptive Cruise Control or Park Assist. These series products are a tribute to our forward-looking approach and willingness to explore new avenues.

PERFORM A NCEPeople

RESPONSIBILIT YEnvironment

DRIVINGIDEAS

IN NOVATIONTechnology

Technology, the environment

and people are the main

areas that will determine

future mobility.

“ D R I V I N G I D E A S .” – T H E M O B I L IT Y AG E N DA

“Driving ideas.” is the mobility agenda of the Volkswagen Group as a whole, demonstrating what our Company is capable of. Superior technology helps to make people more at one with their envi-ronment, as it fulfils mobility requirements safely and conveniently, while at the same time respecting ecological requirements. People have always been the main focus of Volkswagen’s innovative engi-neering; the Group has an excellent track record of serving customers and society alike, and its respon-sibility is based first and foremost on sustainable activities.

Innovation, performance and responsibility – the eight brands of the Volkswagen Group are commit-ted to these values, as can be seen from our 2007 Annual Report. The wide spectrum covered by this alliance of brands – inexpensive family-friendly cars, luxury saloons, spectacular sports cars and

21DRIVING IDEA S

ADDITIONAL INFOR M ATION www.driving-ideas.de

reliable commercial vehicles in a single Group – offers extensive synergy potential that will be leveraged to even greater effect in the future. It is the sheer diversity of the brands that encourages the even greater common efforts to assume a pioneering role in automotive manufacturing worldwide. However, anyone who builds cars with the same passion as the 329,000 employees of the Volkswagen Group knows only too well that customers must also be enthusias-tic about the design of an automobile and how much fun it is to drive.

Financial targets are equally ambitious: for example, the Volkswagen Passenger Cars brand aims to increase its unit sales by over 80 percent to 6.6 mil-lion vehicles by 2018, thereby reaching a global mar-ket share of approximately 9 percent. To make it one of the most profitable automobile companies as well, it is aiming for an ROI of 21 percent and a return on sales before tax of 9 percent. To achieve this, it will be crucial to establish the Group as an outstanding employer, allowing it to attract the best specialist employees and to provide them with further training opportunities – because real “Driving ideas.” only stem from exceptionally trained and highly motivat-ed employees.

Alternative energies, intelligent traffic concepts, air pollution control and recycling are just some of the

forward-looking issues to which the Volkswagen Group’s “Driving ideas.” are geared. One thing all of them have in common is their commitment to serving motorists, the environment and the need for mobility. The first steps have been very promising: with the breakthrough of the second generation of biofuels known as “SunFuel”, the era of non-fossil fuels has now arrived. Together with expert partners, the Volkswagen Group is driving forward applied research in this field. The future lies in switching over to renewable energy and raw materials, and an encouraging start has been made with SunFuel, a fuel that is made from biomass, harnesses energy from the sun and is not produced at the expense of food. Solar-powered cars are becoming an increas-ingly viable prospect. The Group is busy helping to shape this future – a future in which traffic conges-tion may not be entirely a thing of the past. However, technology will render traffic jams safer and less stressful than they are today – allowing drivers to make more effective use of there time: reading, writing, planning or simply daydreaming while the car nego-tiates the bottleneck on its own. For the Volkswagen Group and its employees, this is more than just a vision – it is the goal of their everyday work.

I M AG E F RO M T H E “ D R I V I N G I D E A S .”

A DV E R T I S I N G C A M PA I G N – S O L A R E N E RG Y I N ST R AW (left): With SunFuel, the second generation of biofuels, Volkswagen is exploring new avenues.

I N N OVAT I V E T ECH N O L O G Y (right): Touareg prototype Stanley was the winner of the Grand Challenge 2005.

22 DRIVING IDEA S

L I SA M A , E V E N T M A N AG E R AT AU D I , CH I N A

Audi was very successful in China in 2007. We face new challenges every day. Needless to say, I am very much

looking forward to the most exciting and important event of this

year: the Olympic Games in China. Welcome to Beijing !

R A PH A E L G I OVA N N I , A M B RO S I O T R A I N E E AT S E AT, S PA I N

For me, being a trainee team member at SE AT meant the chance to set

out on an international career – and to help shape

the future goals of the company through my efforts.

EMPLOYEE STATEMENTS ON “DRIVING IDEAS.”

M AU RO A N D R A D E , H E A D O F G E N U I N E PA R T S A N D ACCESS O R I ES AT VO L K SWAG E N CO M M E RCI A L V E H I CL ES , B R A Z I L

I believe in our power and ability to make dreams come true.

At Volkswagen, I learnt that those who work with outstanding commitment are capable of

transcending boundaries. I am very proud to have been part of it all.

B O N G I KO S I QWES H A , A PPR E N T I CE AT VO L K SWAG E N , S O U T H A F R I C A

Winning the “Best Apprentice 2007” award changed my life. When I think of Volkswagen, I see great things

ahead – including my further training and future career.

I VA N COT T I , T ECH N I CI A N I N T H E B O DY D E V E L O PM E N T D E PA R TM E N T AT L A M B O RG H I N I , I TA LY

I have been with Lamborghini since 1989, and am very proud to work in the

development department of this unique Italian brand. For me, being involved in all development stages of the Reventón model

was like a fantastic journey – a challenge and a reward at the same time.

23DRIVING IDEA S

Innov

24 DRIVING IDEA S

Technology for people

ation

25INNOVATION

Diesel – pole position every day

Audi’s famous performance slogan “Vorsprung durch Technik” also

features prominently in its motor racing activities. Audi’s victories

in the Le Mans 24 Hours race in 2006 and 2007 are above all thanks

to the outstanding diesel technology inspired by series production

models. And now, Audi drivers are also benefiting from the tech-

nological progress made on the racetrack. A cross-pollination of

technological ideas that will continue for many years to come.

R ACI N G D R I V E R E M A N U E L E P I R RO and his wife Marie-Hélène are firm believers in Audi’s famous slogan “Vorsprung durch Technik”.

26 DRIVING IDEA S

e Mans is the toughest road race in the world. Drivers, engineers and engines are pushed to their absolute limits. Pit stop, driver change, a handshake, the scorch-

ing daytime heat, the cool night air – and total presence of mind at all times: 24 hours of intense concentration. A seemingly endless stretch of time that decides whether the months of hard work have paid off. Especially when a new car with a new engine technology is being driven to win for the first time.

Audi was faced with a major challenge: anyone taking to the starting line in a diesel-powered car would previously have been laughed off the track. “When we told our suppliers about the diesel project, they asked us if we were really serious”, recalls Dr. Wolfgang Ullrich, Head of Audi Motorsport for the past 14 years. The company itself thinks differently. After all, Audi’s strategies are not based on risks and ventures. “Earning plaudits is not our main objective. We want to set new bench-marks by improving technologies that can be used in series production. And if this wins us prizes on the racetrack, then that’s a bonus”, says Ullrich with a smile. What is the appeal of diesel technology for motor racing ? “Top performance and massive torque at low consumption levels”, explains Richard Bauder, known to all and sundry at Audi as “the Diesel Guru”. Part of the fascination of motor racing is that it spurs on devel-

L opments at a breakneck pace – developments that benefit racing engines and customers all over the world in equal measure.

F I R ST- CL A SS PE R F O R M A N CE , LOW CO N SUM P TI O N

Audi and diesel go back a long way. Since 1976, the manufac-turer has gradually increased the acceptability of the diesel, revamping its image in the process. As early as 1989, the 2.5 liter five-cylinder TDI engine – the world’s first diesel engine with fully electronic diesel control – went into series produc-tion, setting a new trend in diesel technology. Its high accept-ance among motorists has always been due to its outstanding driving performance and optimum comfort at low consump-tion levels. In fact, it was this combination that originally prompted Audi to transfer the fruits of its series production to the racetrack, to further optimize the technology under these demanding conditions and to show the world just what it could offer. “To win at Le Mans, you need the best drivers and the best technology. Even the smallest mistakes or discrepancies can spell the end of your chances, even before the race reaches the crucial laps”, says Dr. Wolfgang Ullrich.

The breakthrough was not long coming: with drivers Emanuele Pirro, Frank Biela and Marco Werner, the Audi Team emerged

27INNOVATION | AUDI

victorious at Le Mans in 2006. With this victory, Audi even bettered its own top per-formance. The V12 TDI engine of the Audi R10 – packing a powerful punch with over 650 bhp – consumed almost five liters less fuel over 100 kilometers than the Audi R8 that triumphed in 2002, even though that particular R8 was already equipped with an extremely fuel-efficient TFSI engine.

PI O N E E R I N G RO L E O N T H E US M A R K E T

This was not just a major accomplishment in sporting terms – it also spawned a new strategy for Audi: to secure the diesel engine its place in automotive history as an innovative, sporty yet environmentally compatible high-performance engine for demanding motorists. “Everything that Audi does in its motor racing activities must have a benefit for our customers. Audi has never been involved in motor racing for its own sake, and never will be.

“Audi is a very popular premium brand in the US market, too – an excellent

springboard for establishing diesel technology.” M AT T H I A S B R AU N , H E A D O F SA L ES AT AU D I U SA

T D I – AU D I ’ S M I L L I O N -S E L L I N G SU CCESS

Every second Audi is sold with a TDI engine. And with good reason: after all, TDI engines are characterized by low consumption, high torque and exceptional power – attributes that are just as much in demand in motor racing as they are in everyday driving situa-tions. In terms of consumption and performance, Audi vehicles with TDI engines were streets ahead of the competition right from the outset. And this lead is set to increase even further in the near future.

380 laps

Prime examples of this are the quattro drive and FSI technology, both of which entered series production via motor racing, meaning that our customers also profited from them”, explains Ulrich Baretzky, Head of Engine Technology, not without a hint of pride. For Audi, this pole position is an important strategic selling point in its efforts to build on its pioneering role in the diesel market segment. Thanks to the constant interaction between motor racing and series production, the Audi Q7 was equipped with the cleanest diesel en-gine in the world in time for its US market launch in 2009. Here, Audi profiles itself as a long-established premium brand with the magic words “ultra low emission system” – a system that already complies with the extremely strict US LEV II Bin 5 emission standards and has been approved in all states of the US. In fact, this engine concept even undercuts the

Drivers Frank Biela, Emanuele Pirro and Marco Werner (from left) won the legendary 24-hour race with the Audi R10 TDI, the first ever diesel racing car to do so.

L E M A N S – 24 H O U R S TO E T E R N I T Y

Audi has been a regular fixture at Le Mans since 1999 – a race that has long attained the status of legend. Audi even achieved the remarkable feat of winning the famous Le Mans trophy three times in a row – in 2000, 2001 and 2002. According to the rules, the trophy can take pride of place in Ingolstadt for ever, rather than being returned after a year. In 2006 and 2007, Audi once again won twice in a row with its revolutionary R10 (V12 TDI engine).

28 DRIVING IDEA S

Mr. Pirro, what were your thoughts when

Audi announced their intention of convert-

ing their racing cars to diesel ? Were you

skeptical at first ?

emanuele pirro: To be honest, had it not

come from Audi, I would have assumed it was

a joke. I’ve been driving for Audi for fourteen

years and know how much importance the

company attaches to having the best and new-

est technologies. The notion of using diesel in

motor racing was so innovative that it took a

bit of getting used to. When I drove the car for

the first time, it was a very moving moment for

me and I knew instantly that it was a winner.

What differences did you notice compared

with the petrol engine ?

emanuele pirro: It’s a lot gentler than a

petrol engine and far quieter as well. A

racing car with a feel-good factor. That was a

new experience for me. A veritable milestone.

Ms. Pirro, you live with your family in Monte

Carlo and Rome, where driving can be rather

stressful, to say the least. Why do you drive

a diesel ?

marie-hélène pirro: I see diesel cars as

being very suitable for women. In fact, I

drove a diesel long before my husband started

AU D I Q7 3. 0 L T D I –conquering America with ultra-modern diesel technology

The Q7 will debut its 3.0 l TDI variant in the USA in early 2009. Although many Americans are familiar with Audi’s outstanding diesel technology from their visits to Europe, diesel engines are still few and far between on the US market, particularly in the SUV segment. Now, with the Q7’s high-performance diesel powertrain, Audi is not only complying with the strict US emissions regulations, but is carving out a new image at the same time. “A diesel vehicle doesn’t have to look like a tractor”, says Matthias Braun, Audi’s head of US sales. “The Q7 has an eminently sporty profile.” Braun believes that many Americans are passionate about motor racing and are well aware of the outstanding performance of Audi’s diesel vehicles in international races. As well as this, US citizens are now much more aware of the importance of minimizing fuel consumption. This being the case, there is plenty of room for Audi’s four rings in the land of the Stars and Stripes.

INTERVIEW WITH EMANUELE PIRRO AND HIS WIFE MARIE-HÉLÈNE

“Racing car or series vehicle – the character’s still the same”

An encounter of a very special kind:

Emanuele Pirro, Le Mans winner in 2006

and 2007, and his wife Marie-Hélène,

mother and homemaker, talk to us about

Audi diesel technology.

EU6 emission limits expected for Septem-ber 2014. In Europe, the engine is offered as an option in the Audi Q7, A4 and A5. For Audi, “TDI” also stands for “Technol-ogy – Dynamism – Innovation”. The auto-mobile manufacturer demonstrated its innovative potential back in 1913, when Rudolf Diesel developed a new technolo-gy: biodiesel. Today, Audi is already work-ing on the second biodiesel generation. Biomass-to-liquid biodiesel (BTL) will be among the fuels used at Le Mans in 2008. Spectators will be amazed when the Audi R10 takes its place at the Le Mans start-ing line – its engine is so phenomenally quiet that the local rabbits will only run for cover at the last minute.

driving the R10. It is very economical and

quiet, but still full of energy and fun to drive.

What does it feel like to get behind the

wheel of your Audi after racing an R10 ?

emanuele pirro: There’s not much of a dif-

ference, to be honest. You immediately feel

that both have the same character. It’s the

same brand and as a racing driver, it goes

without saying that I am part of the brand.

You are the mother of two sons. What does

having an Audi diesel mean for you as a

homemaker ?

marie-hélène pirro: Well, of course it’s

very economical, that’s good for the house-

keeping. I only need to fill up every 600 kilo-

meters or so, which is excellent and an

unbeatable argument in favor of choosing

a diesel. Of course, the extremely robust

engine also gives me a great sense of

security.

Mr. Pirro, what will change for you as a

driver of diesel racing cars over the next

few years ?

emanuele pirro: It’s an ongoing pro-

cess; needless to say, there’ll be continual

improvements to the engine. After all,

Audi’s famous “Vorsprung durch Technik”

slogan is not just an empty promise.

Ms. Pirro, what do your sons Christoforo and

Goffredo say when they’re asked what fuels

the cars their dad races ?

marie-hélène pirro: Diesel – what else ?

ADDITIONAL INFOR M ATION www.audi.com > Experience > Motorsport Events > Audi R10 TDI

29INNOVATION | AUDI

Like pearls on a string

30 DRIVING IDEA S

he simulated scenario on the screen looks rather cute, with computer-animated cars driving

around in a circle. Suddenly, a vehicle brakes for no apparent reason. This causes a chain reaction: the second and third cars in line also follow suit, and the entire circle keeps on slowing up until more and more cars are stationary for longer and longer periods of time. A simple yet forceful illustration of an everyday occurrence that frequently makes life a misery for millions of road users: traffic congestion.

Small cause, great effect. For Dr. Hans-Jürgen Stauss, head of the mobility organizational unit in the Volkswagen Group, the virtual set-up with an abruptly braking car is the starting point for research into a phenomenon that is visibly leading to chaos on the roads, and not only in densely populat-ed urban areas. Congestion is a prob-lem that affects all highly differentiated

Traffic congestion is the natural enemy of the everyday motorist.

Given that the level of personal traffic is set to increase even

further, Volkswagen researchers and mobility experts are working

on future remedies. Their aim: to improve traffic flow by using

intelligent cars that can see, hear and speak.

T truck traffic is set to increase by 20 per-cent and 34 percent respectively over the next twelve years. Is our mobility society in danger of grinding to a halt on the roads ? International experts are warn-ing against scaremongering and an over-dramatization of the situation. For exam-ple, traffic researcher Dirk Helbing, Professor at the Swiss Federal Institute of Technology, Zurich, firmly believes that it is possible to counter this development. According to Helbing, it is vital to devel-op and introduce cooperative driving systems and to help road users to regu-late the traffic themselves by means of decentralized control systems. Although this may sound rather abstract at first, its meaning becomes clearer on examin-ing the main reasons for traffic conges-tion: 50 percent of traffic jams are attributable to road works and 30 per-cent to accidents. It is narrow stretches of road such as slip roads that can slow down the f low of traffic or even bring it to a standstill.

and networked systems: it is found on railway lines, on water (container handl-ing), in the air, in telephone networks and on the Internet. And there is no shortage of apocalyptic prophecies – for instance, some experts predict an Internet-led breakdown in global data f lows in the very near future.

B I L L I O N S O F E U RO S O F DA M AG E

TO T H E E CO N O MY

Even if the worst fears never come to pass, traffic congestion already incurs huge costs. For a start, it causes untold amounts of petrol to be wasted – and unnecessary emissions generated – by stationary vehicles. In addition, working time lost owing to traffic congestion also causes billions of euros of damage to the economy every year. And the substantial traffic growth predicted for Germany – Europe’s traffic hub – is giving further cause for concern. According to the acatech study “Mobility 2020 – Prospects for the Traffic of Tomorrow”, car and

700 kmOVER ALL DAILY LENGTH OF TR AFFIC JA MS ON GER M AN MOTORWAYS

261,000 kmTOTA L A N N UA L L E N G T H O F T R A F F I C JA M S O N G E R M A N M OTO RWAYS

191,000 hrsT R A F F I C JA M S O N G E R M A N M OTO RWAYS

Figures: as at 2005

31INNOVATION | GROUP TOPIC TR AFFIC

I N FUTU RE , C A R S WI LL SE E A N D H E A R

So what can – and must – be done ? Mobility research in the Volkswagen Group takes a scientific yet solution-oriented approach. Dr. Hans-Jürgen Stauss and his team are well ahead of their time when they talk about the intelligent car of the future that can see, hear and speak. A number of driver assistance systems already in existence – such as Automatic Distance Regulation (A DR) – ensure that the right distance is kept between two cars. However, this is just the beginning. As of 2015 or so, there are plans to equip all Volkswagen Group vehicles with sensors that assess the driving environment and the traffic situation. In addition, they will be capable of communicating with other vehicles by sending and receiving signals, i. e. exchanging information about traffic f low and bot-tlenecks. Stauss outlines the shape of things to come: “The car will have a telematic horizon, meaning that it can see better and further than the driver – even around bends.” Drivers will then be able to respond appropriately to the shifting traffic environment. However, what happens if all road users take the same steps to avoid a traffic jam ? Wouldn’t such collective behavior be enough to

cause a substantial traffic jam of its own ? The answer is no: this will be avoided as long as the f low of information is sufficiently individualized. For this, it is necessary to network the decentralized sensor technology with centralized traffic manage-ment centers. However, Stauss emphasizes that the necessary long-range traffic sensors still have seri-ous shortcomings that could be overcome through data highways between vehicles and traffic centers.

The mobility expert envisages the dense yet f lowing traffic columns of the future as pearls on a string. Not halting, but moving freely – thanks to an elec-tronic control system that permits shorter distanc-es between vehicles traveling at higher speeds. Naturally, drivers will continue to have full control of their cars in the future. However, when con-fronted with a traffic jam, drivers can sit back and let the technology do the work, as an invisible hand guides them securely through the bottleneck.

Prof. Helbing, with the increasing volume of traffic in Germany – the transit hub of Europe – road conges-

tion is becoming a problem that is causing great economic damage. What can be done to remedy this ?

dirk helbing: The central controlling concepts behind traffic management as we know it are approaching their limits. The new trend is towards cooperative driving systems which help road users to organize traffic themselves.

Exactly what does this involve ?

As you know, we already have driver assistance systems, but these are mainly there to enhance our comfort and safety. In future, the distance between vehicles and the speed at which they travel will be regulated at critical congestion points – such as roadworks or motorway junctions

– by radar sensors on cars, which will have a positive effect on the overall f low of traffic. By using this kind of automated driving, we can stabilize traffic f lows and increase capacity.

So traffic density is not the problem in itself ?

Traffic density only becomes a problem when traffic comes to a standstill. A growing number of vehicles on the roads does not necessarily lead to congestion. It’s a question of keeping the traffic f lowing.

Do we need additional motorways, or at least more multi-lane roads ?

It would certainly make sense to provide motorists with extra lanes on certain routes. However, particularly in view of the need to preserve our environment, our priority should focus on further developing systems that facilitate cooperative driving. There would be much to gain from this.

PRO F. D I R K H E L B I N G

Traffic researcher at the Swiss Federal Institute of Technology, Zurich

“Cooperative driving”

ADDITIONAL INFOR M ATION www.acatech.de

32 DRIVING IDEA S

Dr. Stauss, are congested roads an unavoidable consequence of the

growing mobility requirements brought about by modern business

and lifestyles – a consequence that we must simply accept ?

dr. stauss: Yes and no. It is certainly true that congestion goes hand in hand with densely populated societies and that it can never be counteracted completely. This not only affects personal transport on the roads, but also user traffic on the Internet, for instance. Congestion is caused by the increasingly fast and networked nature of the world, under the inf luence of globali-zation. However, this does not mean that we should sit back and wait for the situation to sort itself out. The interaction be-tween man and technology can be instrumental in improving traffic f low.

Are you talking about the development of intelligent vehicles that use

sensors, communications systems and other features to detect dangerous

situations and critical bottlenecks well in advance ?

That is one aspect. We are working on a new generation of automobiles that aim to facilitate networked mobility. In this

“Interaction between man and technology”

There is no quick-fix solution to the traffic conges-

tion problem. Dr. Hans-Jürgen Stauss, head of the

mobility organizational unit in the Volkswagen

Group, makes the case for differentiated solutions.

S C A N N I N G T H E F U T U R E

One vision that is already becoming reality: networked vehicles exchange

information and synchronize with each other for the optimum response to the

traffic situation. In the not-too-distant future, it will be possible for a combina-

tion of sensor systems (radar components, laser scanners and image programs)

to scan a car’s surroundings and provide an extensive electronic overall picture

of the traffic situation. In association with the Universities of Oldenburg,

Hanover and Braunschweig and with the support of the State of Lower Saxony,

the Volkswagen Group is one of the driving forces behind a research initiative

that is working to bring this vision to life. Adaptive Cruise Control (ACC) is

already available for a number of Volkswagen models, slowing the car down

according to its distance from the car in front or – a new development – accel-

erating again afterwards. In addition, the Front Scan environment observation

system warns drivers if they get too close to vehicles in front and ”arms” the

brakes in preparation for the driver to perform an emergency brake maneuver.

case, it is the vehicles themselves that capture and pass on information so that their drivers can take steps to avoid con-gestion – at such an early stage that stop-and-go situations never arise in the first place. At the same time, though, drivers must also adapt their driving behavior.

Can you explain this in more concrete terms ?

Studies have shown that there is such a thing as optimum driving behavior in traffic, but that it varies widely from situation to situation. There are situations in which it would be advisable to have greater distances between vehicles, in order to avoid rear-end collisions or to make it easier to change lanes. However, in areas where road works are being carried out, excessive gaps between cars could make capacity bottlenecks even worse. In future, there will be systems that assist drivers – especia lly in difficult situations such as these – while improving comfort, safety and traffic f low at the same time.

33INNOVATION | GROUP TOPIC TR AFFIC

L O R E M I P SUM D O L O R EMIquatin el dolorpe raessequi blaore commodolore conummo leniame tum-molo. Iquatin el dolorpe raessequi blaore commodolore conummo leni-ame tummolo. Iquatin el dolorpe raessequi blaore commodolore con-ummo leniame tummolo.

Keeping Gaudí’s creative spirit alive

Barcelona, widely known as Spain’s creative hub, is also home to

practical cars that are charged with “auto emoción”. Two new

development facilities – the SEAT Design Center and the Prototype

Center of Development (CPD) – convey a winning combination of

aesthetics and functionality, both through their own architectural

design and the production of fascinating automobiles.

34 DRIVING IDEA S

or over 100 years, the Catalan city of Barcelona has been synonymous with exciting design, avant-garde forms and inventive color compositions. Much of this reputation is owed to the influence of architect and designer Antoni Gaudí (1852–1926). His unique creations – the

Sagrada Familia cathedral, Park Güell and Casa Batlló – continue to captivate visitors from all over the world.

Today, Gaudí’s heirs in the Volkswagen Group are designing cars at the SE AT plant in Martorell, a mere 45-minute drive from Barcelona. The setting for their work is a Design Center which, although only in operation since October 2007, is already a magnet for creative minds in search of inspiration. Developed by designers for designers, the Center is the most modern and innova-tive of its kind in the world.

I N S PI R I N G D ES I G N I N CLO I ST E R E D S ECLU S I O N

Michele D’Alessandro, who runs the Design Center, explains the center’s creative potential: “In this building, our designers can map out their entire production process independently – from the blueprint on the drawing board through virtual studies on the computer to the finished, fully painted model. You won’t find this anywhere else in the world.”

F

LU C D O N CK E RWO L K E A N D M I CH E L E D ’A L E SS A N D RO

(from left) shape the “auto emoción” in the new SEAT Design Center.

35INNOVATION | SEAT

Situated on a hill and completely closed to the outside world, the Design Center could almost be said to be a kind of stronghold. A fitting description, since hardly anything in the automotive world is treated as protec-tively as designs and prototypes. However, the closer one gets to the building, the more it resembles a monas-tery. This is because the interior view, with a kind of modern cloister and a light-flooded inner courtyard, conveys a wondrous sense of transparency – a bright, clear and logical space for aesthetic ideas to flourish.

“This gives a great boost to motivation and significantly improves the way we communicate with one another”LU C D O N CK E RWO L K E , CH I E F D ES I G N E R S E AT

T H E T R I B U F O U R-W H E E L D R I V E CO N CE P T C A R

symbolizes the shape of future Seat models

C A R B O DY CO N ST RU C T I O N

in the Preproduction Center

Taking pride of place in the center is the Tribu four-wheel drive concept car, created by Chief Designer Luc Donckerwolke. This car visualizes the design world of future SE AT models and gives an indication where the brand wishes to go.

There may well be larger design centers, but in terms of efficiency, this one is second to none: after all, the 100 or so employees – from ten different countries – can see directly, in each stage of development, whether their ideas can be implemented in practice. This speeds up processes enormously, thus bringing about a marked reduction in costs. The visionary architecture also facilitates interaction between different divisions, which in turn brings a lastingimprovement in efficiency. Because of this, the Design Center sees itself as a “company within a company”.

M ATURE IDEAS PASS TO SERIES PRODUCTION

“This gives a great boost to motivation and signifi-cantly improves the way we communicate with one another”, enthuses Donckerwolke, “because we see this working environment as a feeding ground for ideas and innovations – and these thrive under ideal conditions such as these. In this way, we aim to expand our product portfolio permanently, so that we can reach our target of selling approximately 800,000 vehicles by 2018.”

36 DRIVING IDEA S

AFTER THE DESIGN COMES THE PROTOT YPE

The Centro de Prototipos de Desarrollo (CPD) began operations in January 2007. The CPD is the technological heart of the entire plant – not only due to its central location, but also because it com-bines development with series production, i. e. it unites product and process directly. “The idea behind this preproduction center was to combine the functions of prototyping, modeling, pilot prod-uct development and series analysis under a single roof ”, explains Dr. Oliver Blume, who is in charge of Brand Planning. “It was particularly important for us to have lean work processes and, above all, to have optimum working conditions for our 300 experts”.

“CO ST SAV I N GS I N T H E R EG I O N O F 15 PE RCE N T ”

The unique selling point of the building is that the relevant pressing, body construction, assembly and quality analysis specialists are all based around the communication center located at the heart of the complex. This integrated structure allows the pro-duction start-up to begin as early as the first proto-type stage and to benefit from feedback from the current series production. “This speeds up the qual-ity processes considerably”, explains Javier Diaz, head of the preproduction center. “In addition, we expect cost savings in the region of 15 percent in

prototyping alone. When this is added to savings in equipment, the Center will have paid for itself in two years.”

A particularly appealing aspect of the preproduc-tion center concept is how virtual technology is inte-grated for data control models and prototypes: in this early stage of the project, all surface and con-struction data is simulated in the form of a model, before being transferred to the real vehicle. In addi-tion, virtual technology offers considerable advan-tages in analysing and implementing quality improvements in preproduction vehicles: a number of alternative solutions are run through the compu-ter and subsequently tried out on the production f loor. Virtual simulation is also used for the later stages of the production process, from pressing to assembly. This procedure irons out potential problems long before series production begins. An invaluable advantage from which SE AT drivers also benefit – in the form of ever-improving quality and reliability.

D R . O L I V E R B LUM E

A N D JAV I E R D I A Z (from left) in the Preproduction Center

ADDITIONAL INFOR M ATION http://media.seat.com > Company > SEAT Design Center

37INNOVATION | SEAT

Perfor

38 DRIVING IDEA S

mancePure and simple

39PERFOR M ANCE

Das Auto

Volkswagen

40 DRIVING IDEA S

41

It all began with the Beetle – the West German economic miracle

and the rise of the Volkswagen Group to become Europe’s leading

automobile manufacturer. The Golf not only reflected the aspira-

tions of an entire generation, but also established itself as the

Group’s international best seller. And then there is the up ! – the

pioneering city car from Wolfsburg designed to meet today’s

ecological challenges and changing mobility conditions.

an egg – it crested the first wave of West German prosperity, which led to what contemporary sociologist Helmut Schel-sky described as a “leveled middle-class society”. However, society proceeded to diversify slowly but surely, triggering a variety of different needs. And the Beetle adapted imaginatively to the changing tastes: chrome began to take over and the accessories even included a bud vase beside the steering column. Other popu-lar options were the “tiger skin” steering wheel cover and the picnic trays. While Conny Froboess and Peter Kraus were singing about going south to Italy, Ger-man holidaymakers were driving their newly styled Volkwagens to Rimini and soon even as far as Spain. Having returned home, they would invariably tell their friends how well the car coped with the mountain passes.

And with good reason – after all, the Beetle was second to none when it came to technical reliability. Robust and virtually indestructible, these cars gave their owners many years of pleasure, a fact that also explains their high resale value. The Beetle was the most visible expres-sion of automotive democratization in post-war West Germany, where values such as stability and sobriety by no means dulled the lust for life. The famous adver-tisement, in which the car “runs and runs and runs …”, was no exaggeration. Even the rebellious youth of the 1960s

T H E B E E T L E –

symbolized the values of an entire generation: stability,

sobriety and lust for life

Volkswagen – soon widely known as V W – has always ref lected each generation’s outlook on life. To this day, it is still the epitome of the “Made in Germany” hall-mark, although in the age of globaliza-tion, this is more of an international quality benchmark than a geographic designation. The Volkswagen brand con-tinues and will continue to symbolize superior German engineering, charac-terized by sustainability and social respon-sibility. And committed to keeping the legend alive.

“IT RUNS AND RUNS AND RUNS …”

Much of the Beetle’s appeal was attribut-able to its aura of classlessness, which made it the vehicle of choice for families, blue-collar and white-collar workers, individualists and high f lyers alike. With its functional equipment level and its no-frills, yet esthetically pleasing appear-ance – often associated with the shape of

PERFOR M ANCE | VOLK SWAGEN PA SSENGER C ARS

ovement is a basic human need. Throughout the ages, transport was necessary in

order to a llow goods, ser v ices a nd information to be exchanged in eco-nomic societies characterized by the division of labor. For thousands of years, horses were the preferred means of transport. This all changed in the 19th century with the advent of rail-roads, soon to be joined by the telegraph and telephone as the swiftest means of communication. But it was only with the invention of the motor car that mankind truly began to “go places”. Initially a luxury product for a privi-leged few, the breakthrough of mass motorization arrived with the rise of the aff luent society after the Second World War.

No vehicle seized this historic opportu-nity as astutely as the car of the era:the Volkswagen, initially in the form of the “Bug”, as it was first dubbed bythe Americans. Its inventor, Ferdinand Porsche, sought to create a “f ully-f ledged, idiot-proof vehicle for everyday use”, which would be affordable and reliable. In short: a car for the people. The Beetle made the Volkswagen Group into an institution in the young Federal Republic, one of the driving forces behind the West German economicmiracle and a mirror of changing trendsand styles.

M

and 1970s could not escape the fascina-tion of the car of their time. On both sides of the Atlantic, the Beetle established itself as the cult object of a generation – a generation that decked it out in bright colors, while combining social protest with f lower power fun.

INNOVATIVE THINKING:

THE KEY TO LONG -TER M SUCCESS

Times change – and market wants and demands change with them. This has always meant finding new answers to new questions. 1972 saw the Beetle at its zenith: with 15,007,034 models roll-ing off the production lines, it was the most widely produced car in the world. It not only captured the hearts of motor-ists, but also of the cinema-going pub-lic, as can be seen from its starring role in films such as “The Love Bug” and “Herbie Rides Again”. The year 1973 marked another turning point: with the oil crisis, the public realized for the first time that there was not an unlimited supply of fossil fuels. At the same time, people gradually began to give thought to ways of protecting the environment. The age of short-term resource squan-dering was drawing to its inevitable close. Responding to change is a central part of the Volkswagen tradition – this was illustrated once again by the intro-duction of the first Golf generation, which made its debut in 1974. The new

My fi rst timeU P A N D AWAY WI T H T H E B E E T L E – BY P E T ER ZO L L I N G

“The Beetle was the first car I owned myself and, even after all this time, it hasn’t lost any of its fascinating allure for me. These days, I drive “Frieda” – a reef-blue Beetle who will be celebrat-ing her thirtieth birthday this year !”

E L K E PE T E R S E N

mer storms on the Bay of Biscay. With the rear

bench removed, the stove, gas cylinders and

provisions looked more like stocking up for hard

times. But there was no chance of that. For four

weeks, the friends traveled through the shimmer-

ing heat of Spain, sun and sea on their skin, the

sound of the Doors and Barry White in their ears,

and sangria and paella on their tongues. And the

Beetle got everyone home safely, with its engine

still in pristine condition. Purring merrily away,

it puts up with all the things that boys get up to

when they get behind the wheel of a car for the

first time. Or rather, of the car – as we felt back

then – a car whose success story is being contin-

ued by the Golf and the up ! today.

Veteran SPIEGEL contributor Peter Zolling lives in Hamburg, where he works as a journalist and writer. The new and updated edition of his book “German his-tory from 1871 to the present day – how Germany be-came what it is” was published at the end of last year.

Sommer 1974. A year before the final school

exams. An exciting time. A group of friends on

their first trip to the South of France and Spain –

with a VW Beetle borrowed from generous par-

ents. All the proud owners of brand-new driving

licenses, some only passed the second time

round. For this contemporary witness (pictured

front right), the Beetle was always a reliable

four-wheeled friend, right from early childhood.

Inextricably linked to unforgettable experiences.

And a few hair-raising moments, such as when a

horse’s head peered through the open window

when crossing the border to Italy, the Germans’

holiday paradise, at the end of the 1950s, tempo-

rarily shrouding everything in darkness. Although

the exams were looming, we didn’t let that get

us down. After all, the Beetle won the trust of

generation after generation – as a faithful trans-

porter at home and abroad, and as a sturdy ref-

uge when the tents failed to withstand the sum-

42 DRIVING IDEA S

car was nothing less than a revolution: a bold step forward in terms of both design and technology. However, as with the Beetle, design followed function, and the technology ref lected the requirements of the day. The Golf arrived on the scene with an angular, straight-line design, a water-cooled front-mounted engine replacing the air-cooled rear-mounted one. This was the sleek alternative for changed every-day needs: a car that is energy-efficient, economical and powerful yet exception-ally nimble. Then, to the amazement of all but the very few visionaries, the Golf not only continued the success story written by its predecessor, but rose to even greater heights.

GOLF: THE NEW NATIONAL PA STIME

Golf variants were developed at a far faster rate than was ever the case with the Beetle. After the German economic miracle had paved the way for mass consumption and widespread motoriza-tion, society began to differentiate itself visibly, creating scope for lifestyle choices. As an eminently likeable small car, the Golf appealed to many different cate-gories of buyers: not only practically-minded young families and respectable senior citizens, but also lifestyle-oriented individualists – the “Golf Generation” (see box). Volkswagen was only able to serve these wide-ranging needs thanks

In his book “Generation Golf”, which uses

the VW Golf as the common symbol for

exploring the yearnings of the German gen-

eration currently in its mid- to late thirties,

Florian Illies holds up a mirror to himself

and his peers. The car combines “modern

aesthetics with a sense of tradition”, pro-

claimed the herald of a new hedonism that

invented ego as a trademark.

Illies, a pop-culture writer, was well aware

that the Golf was capable of being the

epitome of individuality while offering

practical family values. “I wanted to do

everything differently to my old man”, he

recalls with self-irony, “and now we’ve

ended up driving the same car.”

A Golf veteran

to f lexible new production processes. A far cry from the rigid conformity of mass production, the use of modular compu-ter-aided manufacturing brought about increased automation and f lexibility. As early as 1976, the Golf GTI arrivedon t he ma rket, its sights set firmlyon a younger, decidedly sportier target group. This was followed by the Golf Convertible, which was aimed at sun-loving urbanites hankering after fresh air, and later by the Caddy and theVariant. The Golf established itself as a byword for superior motoring for the people: lively yet dependable. This was a lso evident in the slogan used forthe launch campaign: “Golf: the new national pastime”. Today, the Golf is the Volkswagen Group’s most widely pro-duced car, with over 25 million units to its credit. And it’s a car with which its drivers readily identify. Just like the Beetle before it, it “runs and runs and runs”. As the car has undergone so many development stages, the first “Golf Generation” has since given birth to another four. It’s thanks to the Beetle and the Golf that the world is richer in democratic mobility. While the Beetle is still seen as a quintessentially German car, the Golf has long since become a true European. Volkswagen now feels that the time has come to launch a city car to meet the mobility needs of the glo-balized world.

GENER ATION GOLF. Eine Inspektion.by Florian Illies (Author)Publisher: Fischer (pb.), FrankfurtISBN: 978-3-596-15065-6

TEX TBY PETER ZOLLING

“In 1965, we took the V W Bus to Finland. More than enough room for five people, camping equipment and a folding canoe. For us, that was pure, unadulterated freedom – and an unfor-gettable experience !”

PE TE R G A ST

43PERFOR M ANCE | VOLK SWAGEN PA SSENGER C ARS

UP ! – A NEW DIRECTION

FOR A CHANGING WORLD

Given the need to protect the world’s climate and safeguard its scarce re-sources, new ideas in personal mobility are called for. With the up ! concept car, which has already met with a very positive response at motor shows in Frankfurt, Tokyo and Los Angeles, the Volkswagen Group is remaining true to its tradition of innovation and sustainability. The up ! has been conceived as a global car that, once on the market, will revive the Beetle legend – driven by ultra-modern technology and the highest eco logical standards. According to the concept study, this compact zero-emission van will harness the energy of the sun through a large solar panel on its roof. The car is powered by electricity or a high-temperature fuel cell. Volkswagen is using this drivetrain system to spear-head a change in the applied research of mass-production fuel cells. The high-temperature fuel cell will be suffici-ently light and have enough storage capacity to guarantee outstanding per-formance – a key requirement for sus-tainable everyday usage. With the up !, customers will be able to rest assured in the future that “Das Auto” – the car – is still a Volkswagen.

A spectacular party for a spectacular car, an

event where all the stops were pulled out.

And rightly so – after all, it was to celebrate

the production of the 25 millionth Golf, 33

years after the original model was launched.

Not only is the Golf the most successful

Volkswagen ever, but an icon that continues

to write automotive history all over the

world. To mark the occasion, Volkswagen

invited all employees past and present,

together with their families and friends, to

a lavish party in honor of its classic model.

An entire region was in party mood, with

some 135,000 guests and a variety of events

stretching for 4,500 meters. Guests were

also treated to a musical journey through 33

years of rock and Golf history, with interna-

A party fit for a star: the 25 millionth Golf

“For me, the Golf I had a unique, timeless design. The car looks very dyna-mic yet friendly at the same time. That’s why I have two of them in my garage.”

E D I N B U K V I C

tional stars such as the Weather Girls, Peter

Maffay and Chris de Burgh playing their great-

est hits as part of a 150-minute program.

25 million Golfs – and a wealth of personal

stories connected with them. Sheer, unadul-

terated emotion. For many guests, this

brought back happy memories of their own

Golf. The cream of these recollections – many

from members of the “Golf Generation” – are

reproduced in the book “25,000,000 Golfs”.

Fittingly, this collection of precious memories

was designed to look like a gold bar. For the

record, the 25 millionth Golf was painted in

signal red – and, as the big day came to an

end, it gleamed in the light of the largest

fireworks display ever seen in Wolfsburg.

Spot on!

44 DRIVING IDEA S

Mr. De Silva, is design more a matter

of appearance or substance ?

walter de silva: We strive for both: for the

attractiveness of an emotional form and

the authenticity of inner values. After all,

design needs substance to be compelling.

In the last century, the Volkswagen brand was

primarily associated with the classic “Beetle”

and “Golf” models . There is a world of differ-

ence between the appearance of these two

models. Can such radical developments – like

the change from the round to the initially very

angular, straight-line design language – also

be expected in future vehicles ?

These differences may seem great, but in

fact they only relate to the outward appear-

ance. The two vehicles in question share

similar inner values, a strong work ethic

and a high market acceptance. Both models –

the Beetle and the Golf – retained their

basic design for decades, and both were

quick to attain the privileged status of

being classless. Another thing they have

“The world today is crying out for innovations – the perfect motivation for designers !”WA LT E R D E S I LVA , CH I E F D ES I G N E R VO L K SWAG E N AG

in common is the uniqueness of their

shape and the impressive consistency of

their design. And, in their own way, both

models set standards for the conception

and design of future Volkswagens.

You are responsible for the design of all brands

and subsidiaries of the Volkswagen Group.

What unites all these at an aesthetic level ?

I think that all eight brands are character-

ized by outstanding design quality, perfect

functionality and unique aesthetics. Every

brand lives up to these high expectations in

its own way.

“Perfect functionality” VO L K SWAG E N CH I E F D ES I G N E R WA LTE R D E S I LVA TA L K S A B O U T TH E D ES I G N L A N GUAG E O F VO L K SWAG E N M O D E L S

Can you explain this in concrete terms using

the example of the Volkswagen brand ?

Take the terms “modest” and “moder-

ate”, which are becoming increasingly

important in connection with ecological

aspects and social change. Here, the tra-

ditional Volkswagen brand in particular

has an obligation to point the way to the

future. This is what led to the conception

of the New Small Family and the design

of the up ! models. These show a modern-

day interpretation of “desirability”. The

world today is crying out for innovations –

the perfect motivation for designers !

WA LT E R D E S I LVA is the Chief Designer of Volkswagen Group. The former Head of Design at Audi is responsible for the design of all of the Group’s passenger car brands. De Silva was employed at SEAT and Alfa Romeo, among other companies, before working for Volkswagen and Audi.

“I see the “up !” as being 100 percent Volkswagen. It will win people over with its clear, no-frills design and its deceptively spacious interior. Quite simply a great car for everyday motorists.”

SA N D R A ST U R M AT –who was involved in designing the head-lights and tail lights on the “up !”

45PERFOR M ANCE | VOLK SWAGEN PA SSENGER C ARS

Volkswagen Commercial Vehicles

speaks Turkish

46 DRIVING IDEA S

bi”, says the Turkish man, smiling and em-bracing another man warmly. The “brother” in question is Nihat Bozcelik, who has just

sold him a Volkswagen Multivan. The two men are not related, but in their culture, it is normal to fol-low up successful business transactions by convey-ing pleasure, gratitude and mutual commitment. Allowing such a degree of emotion in sales transac-tions – and being able to reciprocate in kind – is a skill in itself. It is stories such as these that are fre-quently related by Nihat Bozcelik, a sales consultant at Volkswagen Commercial Vehicles, and Wolfgang Stahl, Volkswagen Center Manager at Autohaus Gottfried Schultz in Mülheim an der Ruhr, when they wish to illustrate the growing importance of ethnic marketing in their company.

PR E L I M I N A RY CH AT WI T H T E A CE R EM O N Y

“In ethnic marketing, sales staff from the same cul-tural background as their customers are given intensive training in all socio-cultural aspects and sales strategies”, explains Bülent Bora, Managing Director of Berlin-based KOM GmbH – Media & Mar-keting, the agency responsible for developing this campaign for Volkswagen. Sales talks with custom-ers of Turkish origin frequently take a wholly differ-ent course. For the most part, these customers come very well prepared, are familiar with competing products and offers and know exactly what they want. Nonetheless, the first thing on the agenda is a

“AServing customers means going more

than halfway to meet them. Germany

is now home to 15.3 million people of

foreign extraction, of whom 2.7 million

are of Turkish origin. Winning over these

potential customers involves being

familiar with their different mentalities,

socio-cultural characteristics, habits

and customs. Only in this way can each

individual customer be reached. Ethnic

marketing is a tool that is ideally suited

to this purpose. Which is why Volks-

wagen Commercial Vehicles has been

running the campaign “Volkswagen

spricht türkisch” – Volkswagen Speaks

Turkish – for almost three years.

PE R S O N A L CO N TAC T F O ST E R S T RU ST –

which is necessary for good business relationships. Where one culture shakes hands, another embraces.

PERFOR M ANCE | VOLK SWAGEN COMMERCIAL VEHICLES 47

long preliminary chat over a glass of tea in order to “warm up” for the negotiations that may follow. This ceremony is a sign of respect and helps to establish trust. Only afterwards can the parties get down to business. Sales talks sometimes last sever-al hours over a number of days. In this time, they talk at length about their families and other per-sonal matters. The main focus is on the cultural customs and needs of Turkish customers. “The sales consultant’s job is initially to establish trust”, explains Bora. Of course, Turkish immigrants have contributed to consumer spending in Germany ever since the first “guest workers” arrived in the 1960s. However, com-panies are now tapping into this submarket by addressing its members’ cultural roots and national customs. One of the pioneers of this development is the Volkswagen Group. Customer feedback from the “Volkswagen Speaks Turkish” project, which was launched by Volkswagen Commercial Vehicles at the end of 2005, was correspondingly positive. The same goes for the Volkswagen Passenger Cars brand, which has been “speaking Turkish” since 2006. The

number of Turkish sales consultants employed by both brands will be increased significantly in 2008.

FA SCINATED BY THE PEOPLE AND THEIR CULTURE

Wolfgang Stahl – a veteran sales consultant with Volkswagen in his blood and the needs of customers in his sights – is always open to new ideas. “I was behind the ‘Volkswagen Speaks Turkish’ project from the very beginning”, he confirms. “When dealing with customers, you have to zone in on their precise needs and the products they are interested in. Volkswagen Commercial Vehicles is of great importance for businesspeople of Turkish origin. Because of this, I took on two sales consultants who are of Turkish descent. Within our sales team, they see to the needs of our Turkish clientele.”

The 2.7 million people of Turkish extraction in Ger-many have an enormous purchasing power of some 20 billion euros per annum. Ethnic marketing is also a major driving force behind consumer spend-ing. However, a few well-meaning gestures are not enough: when Turkish customers find a compatriot salesman that they are happy with, his name is generally recommended to their family and friends. He is invited to parties, because he is more than just a salesman and consultant – he is a confidant, a friend and, in some cases, even a brother.

RELIABILIT Y IS THE NUMBER ONE PRIORIT Y

“Abi”: Nihat Boczelik greets his next customer at Autohaus Schultz, Mr. Yücel Seker, the managing

€ 20 billion A N N UA L PU RCH A S I N G P OWE R O F T H E 2 .7 M I L L I O N

PEO PL E O F T U R K I S H O R I G I N I N G E R M A N Y

“The sales consultant’s job

is initially to establish trust.” B Ü L E N T B O R A , M A N AG I N G D I R EC TO R KO M M E D I A & M A R K E T I N G

T H E T U R K I S H B A K E RY OW N E R

Ismail Dogan swears by his bread and by his Volkswagen commercial vehicles.

U N D E R STA N D I N G

B E T W E E N CU LT U R E S:

Wolfgang Stahl received this award for his involvement in German-Turkish relations from the Turkish community in Oberhausen (Ober-hausen Türk Birligi).

48 DRIVING IDEA S

director of a logistics company, who smiles broadly as he enters the showroom. In a few minutes, he will collect his new Volkswagen Multivan, but first there is still some paperwork to be taken care of. Seker’s company is a partner of DHL. Every day, the compa-ny carries up to 9,000 packages and he cannot afford for his vehicles to break down. “Reliability is the number one priority”, he says. This is why he swears by Volkswagen commercial vehicles.

Following this all-Turkish Volkswagen transaction, Boczelik pays a visit to Ismail Dogan in neighboring Duisburg. Dogan runs a large bakery in the district of Marxloh. He plans to expand and must therefore increase his f leet of vehicles. His first Volkswagen – a Caddy – gave 500,000 kilometers of service in its lifetime. This man’s mind is already firmly made up.

Sales consultant and customer sit together at a table laden with savory pastries, bread and olives. How is the family ? When will Dogan’s son take over the family business ? Dogan began training as a baker in his native Turkey at the age of nine; his son was born in Germany. This is the sheer diversity of life that ethnic marketing must embrace – a challenge that the Volkswagen Group was more than happy to take on.

Volkswagen Commercial Vehicles and lifestyle might not sound like the most

probable pairing at first. But with its ground-breaking PR projects, Volkswagen

Commercial Vehicles is proving again and again that lifestyle is an area with

especially great potential for tapping into new target groups.

The Multivan, descendant of the legendary VW Bus, is no longer solely the

craftsman’s workhorse, but is now the limousine of choice for stars such as Will

Smith, Chris de Burgh, or members of pop group Take That. These days, surfers

and families are just as likely to drive a Volkswagen Caddy – the Multivan’s little

brother – as their local painter and decorator. The International VW Bus Meeting

in October 2007 was firm proof – if any were needed – that the VW Bus has a

Volkswagen cult of its own, second only to that of the Beetle. The popular retro

bus is also an international media star, frequently making an appearance in

movies, TV shows and computer games.

Only a few years ago, Volkswagen Commercial Vehicles was still seen solely as a

provider of transporters. Since then, however, MAX magazine has even singled

out the Multivan Business as the vehicle with the highest celebrity count. For a

start, Robbie Williams was chauffeured around in a Multivan during his most

recent world tour, and even Pete Townshend, the mastermind behind the legen-

dary rock band The Who, has admitted to being a Volkswagen fan.

Volkswagen Commercial Vehicles consciously communicates the lifestyle status

of its models. By means of PR cooperations with singers, bands and actors, the

brand has steadily raised its profile – even in media far removed from the auto-

motive world. Rather than investing huge sums in branding and logo placement,

the company provides stars with high-value Multivans, thereby ensuring exten-

sive press coverage. With this innovative concept, Volkswagen Commercial

Vehicles has not only succeeded in tapping new target groups in the media, but

has also proved to be the vehicle of choice for surfers and young people – and a

big hit in the music business, too.

From workhorse to lifestyle automobile

A LWAYS O N T I M E , A LWAYS F R E S H .

An employee of the Dogan bakery in Duisburg delivering the morning’s bread – with a Volkswagen Multivan, of course.

A B OV E: Dark colors and chrome dominate the look of the Multivan Business.

LEFT: “Back for good”: Take That (from left: Jason Orange, Gary Barlow, Mark Owen and Howard Donald) are currently using Volkswagen Multivans on their “Beautiful World” European Tour.

ADDITIONAL INFOR M ATION www.volkswagen-commercial-vehicles.com

PERFOR M ANCE | VOLK SWAGEN COMMERCIAL VEHICLES 49

Safe -guarding mobilityA car is far more than just the sum of its individual parts.

Owning a car gives people the certainty of being mobile at

all times. Whether they are on the way home or on the way

to work, going shopping or going on holiday – car buyers

are looking for mobility they can rely on. The financial

services activities of the Volkswagen Group are geared

towards meeting this customer requirement.

50 DRIVING IDEA S

he greater the distance between a person’s home, work and shop-ping destinations, the greater

the importance of individual mobility. According to the “Verkehrsprognose 2015” forecast for the transport sector issued by the Federal Ministry of Trans-port, Building and Urban Affairs, the volume of traffic in Germany is set to increase even further in years to come. Cars will continue to make up the vast bulk of this traffic: the research group acatech even expects the volume of per-sonal motorized transport in Germany to increase by 20 percent by 2020.

At the same time, however, the cost of automobility is growing continually rel-ative to net wages in Germany. Although this is due primarily to the rising cost of petrol, the cost of buying a passenger car has also been climbing steadily in recent years. For the most part, this is attributable to customers’ growing demands relating to equipment fea-tures. Safety aspects are the main area of focus in this regard: these days, it is rare for cars to be delivered without complex safety systems, airbags, or ESP. Added to this are growing expectations regarding vehicle comfort. For exam-ple, navigation systems and air condi-tioning are so popular that they are often included as standard.

T

PERFOR M ANCE | FINANCIAL SERVICES 51

BU N D LI N G A VA RI E T Y O F SE RV I CES

This means that customers and automotive groups are increasingly concerned with how the cost of every-day mobility can be calculated and financed. Here, the focus shifts from the purchase price alone to the plannable monthly usage costs – one of the reasons why between 70 and 80 percent of all new cars in Western markets are either financed or leased. This is a further indication of the need for affordable and peace-of-mind mobility among customers. This trend has long established itself in the area of f leet management, where the proportion of financed or leased vehicles is traditionally very high. For the most part, further services such as regular inspec-tions are specified in the financing or lease agree-ments. One new development is the emergence of product concepts in the private customer business that bundle a variety of services, thereby ensuring both automotive and financial f lexibility.

M O B I L IT Y F RO M A S I N G L E S O U RCE

Volkswagen Financial Services AG was a pioneering force in this area, launching mobility packages for private customers as early as 2006. The idea was for customers not only to receive financing, but also vehicle insurance, servicing by authorized dealers and extended warranty benefits – all at a

competitive monthly rate. For instance, the “Sauber+Sorglos” package, which was available until the end of 2007, offered customers the Polo United at monthly rates starting at 99 euros. Cus-tomers also have the option of taking out insurance that will cover them in the event that they are no longer able to meet their monthly rates, for exam-ple in the case of job loss or long-term illness. This ensures that they will remain mobile even in diffi-cult circumstances.

M O B I L I T Y CO ST S A N D N E T I N CO M ES I N G E R M A N Y, 19 95 – 20 07

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90

%

01 / 95 01 / 96 01 / 97 01 / 98 01 /0001 / 99 01 / 01 01 /02 01 / 03 01 / 04 01 / 05 01 / 06 01 / 07

Vehicle running costs

I N CR E A S E D

M O B I L I T Y CO ST S

combined with stagnating net incomes lead to budget restrictions.

Source:

VDA, Deutsche BundesbankJanuary 1995 = 100 %

“ Thanks to the competitive monthly rates, our customers are able to calculate the costs of mobility”

H O R ST D I R K S , CH A I R M A N O F B R E M E R FA H R Z E U G H AU S S CH M I DT + KO CH AG

Fuel costs

Net incomes

The “Sauber + Sorglos” package:• 0.9% effective

annual interest

• 4 years’ liability and comprehensive insurance

• 2 years’ extended warranty

• 4 years’ maintenance and inspection

Polo United 1.2 l 44 kW (60 PS) 5-speed

Recommended retail price € 14,275.00

Down payment € 5,377.26

Effective annual interest 0.9 %

Term 48 months

Annual mileage 10,000 km

Final installment € 6,483.35

Monthly € 99,00 1

52 DRIVING IDEA S

In addition to these benefits, the mobility packages are also designed to offer customers maximum con-venience, with all services being provided from a single source – the authorized dealer of their choice. This peace-of-mind mobility concept is ideally suit-ed to the current needs of car buyers, as can be seen from the sales figures: some 400,000 new cars were sold with a mobility package in 2006 and 2007. This is equivalent to 65 percent of all vehicles financed or leased. “Thanks to the competitive monthly rates, our customers are able to calculate the costs of mobility”, explains Horst Dirks, Chairman of Bremer Fahrzeughaus Schmidt + Koch AG. “As well as this, most customers prefer to deal with the same person for all matters relating to their car.”

B E N E F IT S F O R CU STO M E R S A N D VO L K SWAG E N

Customer surveys have shown that mobility packag-es are an important factor when deciding to pur-chase a new car. And because the package price puts less of a strain on people’s budgets, more than half of all respondents treated themselves to special equipment features that they would otherwise not have chosen if they had been making a cash pur-chase. However, it is not only customers who benefit from this greater leeway. By bundling services, the Volkswagen Group also profits at all stages of its value chain. Klaus-Dieter Schürmann, Chairman of Volkswagen Bank GmbH, sums it up as follows: “Since people tend not to retain financed vehicles

for as long as vehicles paid for in cash, this increas-es sales of new cars. As well as this, repairs are car-ried out in authorized workshops, which means that exclusively genuine parts are used. And the all-round customer care helps to create greater loyalty to the Volkswagen Group.”

Volkswagen Financial Services AG now offers mobility packages in most European countries. Based on success so far, there are plans to offer these packages on other markets, too: after all, the customer’s need to safeguard individual mobility is international.

ADDITIONAL INFOR M ATION www.vwfs.com

70 – 80 %O F A L L N E W C A R S I N WEST E R N M A R K E T S

A R E E I T H E R F I N A N CE D O R L E A S E D

With its customized financing and mainte-nance offers, Volkswagen Financial Services AG caters to the individual mobility requirements of motorists.

53PERFOR M ANCE | FINANCIAL SERVICES

A gem of a brand“Lamborghini” has always been synonymous with outstanding

technology and flamboyant design. This is because Ferruccio

Lamborghini, who founded his legendary racing car manufacturer at

the beginning of the 1960s, had his sights set on just one goal: to

build the best sports cars in the world. This “driving ambition” is still

very much evident among the virtuoso Italian carmakers today.

BY J Ü RG E N L E WA N D OWS K I

DRIVING IDEA S54

t was in 1964 that Ferruccio Lamborghini developed a twelve-cylinder engine with four overhead camshafts. To complement this, the motor racing pioneer commissioned his team to design a special fully syn-

chronized five-speed gearbox. He also ensured that the 320 horsepower that accelerated the first 350 GT to 260 km/h harmonized perfectly with an inde-pendent wheel suspension and four disk brakes – all sophisticated technical details that the established competition of the time could not even have be-gun to imagine.

“ SU PR EM E A M O N GST E XOT I CS”

However, even more important was the bella figura – the unique design that put Ferruccio Lamborghini’s cars out of reach of the competition: the 350 GT, the Miura, the Espada, the Countach – all unique gems that revo-lutionized the way racing cars were designed and built. And it is probably this consistent f lair for the exceptional that was continued in the Diablo, earning the brand with the charging bull emblem the title “Supreme Amongst Exotics”.

The exceptional nature of the brand was certainly evident to AUDI AG when it took over Lamborghini on July 24, 1998. In the words of Martin Winterkorn, Chairman of the Board of Management of Volkswagen AG and head of Audi at the time of the takeover: “This brand stands for exceptional sports cars that push the limits of technical feasibility and avantgarde design”. From the very beginning, he knew that this was “a gem of a brand”.

I

The Lamborghini 350 GT was the high point of the Geneva Motor Show 1964 – an unmistakable design, even back then.

F E R RU CCI O L A M B O RG H I N I (1913 –19 93)

had a dream: to design an outstanding car that

would defy convention. In 1963, in order to

make this dream a reality, he set up a company

in the famous Modena-Bologna-Ferrara triangle

– the Mecca of Italian automotive avant-gard-

ists. In 1966, he achieved worldwide fame with

the Miura, a hot-blooded sports car that was

widely held to be the most beautiful of its kind.

This was followed by fascinating models such as

the Countach, the Espada and the Urraco – all

dreams that became reality while still remain-

ing the stuff of dreams.

PERFOR M ANCE | L A MBORGHINI

In 1968, the Lamborghini Espada went down in history as the first-ever four-seater Lamborghini. With a top speed of 250 km/h, it was a rather unusual family car.

55

Since then, the sports car manufacturer based in Sant’Agata Bolognese has proved him right: while 213 Diablo models were sold in 1998, this figure rose to 250 in 1999 and 296 in 2000. September 5, 2001, was the date on which the Murciéla-go was finally unveiled: the first newly developed super sports car of the Audi era was presented at night in front of the red-hot lava slopes of Mount Etna. And, needless to say, the Mur-ciélago was every bit as spectacular as its predecessors – exclusive, aggressive and extreme. The second series model, the Gallardo, also lived up to all expectations when launched in June 2003. The Gallardo Coupé 1

and Spyder 1 are both powered by a five-liter ten-cylinder engine with exactly 520 PS (382 kW) 1, while the six-liter twelve-cylinder engine is the reserve of the Murciélago Coupé 1 and of the Murciélago Roadster 1, which made its debut in 2004.

D ES I G N CE N T E R F O R T H E L EG E N D

The ever-growing success of Lamborghini – with 2,406 units delivered in 2007 – is not only attributable to its spectacular models and to the high quality and everyday usability attributes of the parent company Volkswagen. Another important factor is the company’s structure, which is unusual for an automotive player in that design and marketing are brought together. The advantage of this, according to Manfred Fitzgerald, who, as Director of Brand & Design, is responsible for this exciting field, is that “the two areas are integrated and can therefore react far more quickly to market developments – and without frictional losses.”

The best example of this marriage of design and marketing is the Reventón, which was presented at the IA A last September. The idea behind this strictly limited edition of 20 vehicles was to create a model that would crown the success of the brand, that will serve as a four-wheeled ambassador for the unique-ness of Lamborghini – and that will also demonstrate the short development times of which the sports car manufacturer is

now capable.

When the new “Centro Stile Lamborghini” design center was officially opened next to the modern pro-

duction facilities at the end of 2004, this also signified the independence of the Lamborghini legend. More

than anything else, however, the modern high-tech build-ing aimed to convey that unique manufacturing design of

this kind is at its best when in close proximity to the production facility and to its customers. This is a decision that Volkswagen Head of Group Design Walter de Silva not only supported but in-sisted upon – and which, of course, received the wholehearted support of Wolfgang Egger, the new head of Audi Group Design.

“With this new structure, we are in a position to determine our strategy and our future to an even greater extent than be-fore”, said Stephan Winkelmann, President and CEO of Lam-borghini, adding that “the freedom to define the future of the brand ourselves is the best possible foundation for success”. And the company’s determination to seize this opportunity can be seen by the Reventón, which was developed in a mere six months.

Extreme, hot-blooded, seductive: simply Lamborghini.

“ T H E N E W ”

Gallardo LP560/4

56 DRIVING IDEA S

JÜRGEN LEWANDOWSKI is one of Germany’s most prominent automotive journalists. As well as being Chairman of the German organization Motor Presse Club, he has headed the “Auto and Traffic” section of daily newspaper Süddeutsche Zeitung for over 20 years. He has published some 75 books, many of which deal with the Lamborghini phenomenon.

For this, Sant’Agata-based Head of Exterior Design Filippo Perini was commissioned to design a futuristic Murciélago variant which was then built as a 1/4 scale model. Selected Lamborghini enthusiasts had the chance to admire this Reventón model even before the world premiere during a special presentation. All vehicles of this limited edition will be built and delivered in 2008. This sensational model is clinching proof that Lamborghini is a brand that is capable of retaining its strength, no matter how small the series.

O N T H E CU T T I N G E D G E O F PRO G R ESS

With this step, Lamborghini demonstrated that it is capable of developing and producing even exceptional vehicles within an extremely short turnaround – just one Reventón prototype was built between the original design and the final model. Above all, however, the Sant’Agata carmakers can be proud that they have once again succeeded in preserving the legacy of Ferruc-cio Lamborghini: always to remain on the cutting edge of progress.

CO N CE A L E D A N D R E V E A L E D: Lamborghini exhibits in the “Centro Stile Lamborghini” high-tech design center in Sant’Agata Bolognese

U N CO M P RO M I S I N G LY F U T U R I ST I C:

the new Reventón

PERFOR M ANCE | L A MBORGHINI

1 Consumption and emission data can

be found on page 296 of this Report.

ADDITIONAL INFOR M ATION www.lamborghini.com

57

58 DRIVING IDE A S

(Photo removed for legal reasons.)

Poised to become a

world powerIndia, the subcontinent of contradictions, can be seen as a

challenge and an opportunity at the same time. Its rapid economic

and population growth are creating new goods and services, but also

a huge demand for energy. Meeting growing mobility requirements

and the desire for social advancement will be of crucial importance for

the development of this still deeply divided society.

BY D R . O L A F I H L AU

t the stroke of the midnight hour, when the world sleeps, India will awake to life and freedom” declared Jawaharlal Nehru to

his young nation from the halls of Parliament on the evening of August 14, 1947, when India gained its sovereignty following over 150 years of British colonial rule. The founder of modern India spoke of “dreams” that would be of significance not only for India, but “also for the world”. Sixty years on, the world has woken up to the at times bewildering reality that the subcontinent has brought forth a colossus that will be instrumental in shaping world history. This has nothing to do with the hype about India that appears every now a nd t hen. Today, India should rat her be seenas a new global player – in both economic and politica l terms – an active player in the world of tomorrow, competing for jobs, markets and resources. However, India also opens up new pro-duction and sales opportunities for German and other European companies.

Europeans in particular will have to come to terms with the fact that India, since it is based on a stable democratic society, will be the main contender to the long-term supremacy of the West. In the new

“A global order, India – together with China, the other Asian mega-society – will not only help to deter-mine the pace of modernization, but, as a major driving force behind the global economy, it will soon also draw on most of the world’s available sources of energy and raw materials.

T H E E L E PH A N T I S G A I N I N G O N T H E D R AG O N

When it gained independence in 1947, India had a population of just under 350 million people. Today, its inhabitants number over 1.1 billion, and half of them are younger than 25. Soon the second largest nation on Earth will be the largest. This is because, in the race between the two Asian giants that to-gether account for almost 40 percent of the world’s population, the elephant is gaining on the dragon. According to the latest estimates, China will be overtaken by 2034, when India’s population reach-es the 1.46 billion mark. By the middle of the cen-tury, Asia as a whole will make up 70 percent of the world’s population.

These are awe-inspiring prospects, particularly from a European perspective. However, these pre-dictions may well spell trouble, not least for India itself, which could face disastrous social problems if not enough work can be found for the multitudes.

A P I C T U R E F U L L O F

S YM B O L I SM

Tradition, nature and modernity, old and new influences – all of these are seeking

a balance that benefits people in 21st century

India.

59PERFOR M ANCE | GROUP TOPIC INDIA

Asia’s own Silicon Valley. Nowhere, not even in California, are more IT specialists and engineers to be found. And no other economic sector can

boast such impressive growth rates.

The next step in the Indian high-tech offensive for a knowl-edge-based economy involves the construction of new bio-technology and gene technology research facilities. As well as this, a labor-intensive export industry will be developed with a view to offering the millions of unskilled workers employment in traditional fields of industry. Over 60 million new jobs will be needed by 2010 alone. Most of these are like-ly to come about through the renewal of ailing streets, rail-roads, airports, power plants and irrigation systems. The government in Delhi intends to invest 440 billion US dollars in the country’s infrastructure.

The outlook for India has never been as good as it is today: the country is at peace with its neighbors, well on its way to the top of the globalized economy and is being courted by the rest of the world. “Our challenges lie at home”, says current Prime Minister Manmohan Singh, who dreams that the 21st century will be “the Indian century”. Yes, it is difficult to slow down the elephant once it has finally started moving.

B E T W E E N I L L I T E R AC Y A N D S CI E N CE

The vast tracts of land are still the heart of ancient, agricultural, unchanging India. As before, almost 70 percent of the workforce is employed in the agricul-tural sector. Nonetheless, the driving force of the new India and its colossal boom are the conurbations centered on 35 cities, each with over a million inhabitants. Here, a well-heeled middle class – some 250 million people with ample purchasing power – are triggering an as yet unheard of level of consumption. For 30 years, the giant was constrained by the shackles of a planned economy, making do with the “Hindu rate of growth” of 3.5 percent per annum. With the reforms introduced in the early 1990s came a radical shift towards the market economy. Fueled primarily by domestic demand, economic growth doubled and is now heading for a breathtaking ten percent. Many economists predict that India will rocket past Japan and Germany to join the USA and China in the next 15 years, its hypergrowth maybe even tak-ing it right to the top of the economic table. In a historical context, this development can be compared with the indus-trial advancement of the German Reich at the end of the 19th century, taking over from Great Britain as Europe’s leading economic power.

India’s awakening comes as quite a surprise to many, as it was still seen until quite recently as the poorhouse of the world, notable for having the largest number of illiterates. Indeed, the problem of illiteracy is still an acute one, with over a third of the adult population and more than half of all women una-ble to read and write. The other side of the coin, however, is that India has the second largest reservoir of engineers and scientists in the world, and more computer specialists than any other country bar the USA. India leads the world in infor-mation technology, above all in its laboratories in Bangalore –

Asia expert DR . OL AF IHL AU has written for many years for theGerman daily newspaper Süddeutsche Zeitung, reporting from all regions of the world. Until 2005, he headed the foreign a�airs desk at the German news magazine SPIEGEL. Ihlau is the author of the book “Weltmacht Indien. Die neue Herausforderung des Westens”.

60 DRIVING IDE A S


How important is India as a future market for the

Volkswagen Group ?

It is of paramount importance. Experts estimate that vehicle sales on the Indian market will increase from 1.4 million cars in 2008 to some 3.4 million in 2018 – a jump of some 240 percent. No other region in the world can compete with this growth rate. Our involvement is geared towards participating in the dynamic develop-ment of this market and, at the same time, achieving our own growth and return targets.

How well known is the Volkswagen brand name in

India already ?

The name Volkswagen is still known in India from the “Beetle” era. However, the profile of our current brand still needs to be sharpened – after all, to all intents and purposes we have only been active on the Indian market again since September 2007, when we started producing the Passat in Aurangabad. I have every confidence that we will succeed in doing so.

Could you briefly outline the main focus of the Volkswagen

Group’s India strategy for the next five years ?

The Volkswagen Group’s strategy for the Indian market is a complex one, but it ultimately aims to cover as wide a spectrum of customer wishes as possible. This is why we will be represented simultaneously by the Škoda, Audi and Volkswagen Passenger Car brands. Škoda has been in India since 2001, where the brand stands for high-

N E W J O B S

110,000 I N V ESTM E N T

30 hectares

2,500 V E H I CL ES PE R A N N UM

€ 580 millionS I T E

PU N E

“Our challenges lie at home”P R I M E M I N I ST E R M A N M O H A N S I N G H

quality, solid yet affordable cars, ranging from compact to mid-size. At the other end of the model range is Audi – a brand that offers exclusive cars that are renowned for their premium quality and technical brilliance. Volkswagen Pas-senger Cars will present itself as a premium provider of high-volume cars. To accompany the multi-segment model rollout, a network of dealers will be set up around India. As with the other Group brands, they will offer high quality products and excellent service. Speaking of model rollouts and high volumes – are production

capacities sufficient to cope with this ?

We’re working on that at the moment. The new plant, which is currently being built in Pune, is the cornerstone of Volks-wagen’s strategy. At the same time, it is a symbol of our com-mitment to this market. We will build some 110,000 cars per annum in the Pune plant, and are investing around 580 mil-lion euros in its construction.

I N T E RV I E W WIT H J Ö RG MÜ L L E R ,

PR ES I D E N T O F VO L K SWAG E N I N D I A PR T. LT D.

A N D G RO U P R E PR ES E N TAT I V E F O R I N D I A

61PERFOR M ANCE | GROUP TOPIC INDIA

Respon

62 DRIVING IDE A S


For a sustainable future

sibility

63RESPONSIBIL IT Y

The best

of both worlds

64 DRIVING IDEA S

hen Wolfgang Steiger, head of the Drivetrain Research Department, talks about

hemp, his eyes light up. “This cash crop”, he explains animatedly to a slightly bemused audience, “is what we use to generate fuel for the cars of the future.” Steiger, who has a doctorate in engineering and has been awarded the “Professor Ferdinand Porsche Prize”, has no time for drugs of any kind. Nei-ther is he hallucinating, because his kind of hemp has no narcotic properties at all. Rather, this plant-based raw material – along with pampas grass and elephant grass – is ushering in a new era of biogenic fuels.

OV E R 8 0 PE RCE NT LESS CO 2

“SunFuel” is the name given to the sec-ond generation of biofuels, the develop-ment of which experts such as Steiger have been pursuing with scientific curi-osity, meticulousness and drive, and which will help to facilitate mobility, safeguard energy and protect the envi-ronment. Although this may sound like magic, it is in fact an attempt to harness the cycles of nature: the only CO2 parti-cles that escape from the biomass dur-ing the combustion process in the engine are those that were originally

W

Climate change has highlighted the need for new

ideas relating to mobility, particularly in an era

of globalization. Based on fundamental research,

Volkswagen Group scientists are developing con-

cepts that are ready for application and are testing

biological energy alternatives. The innovative

engine technologies developed in this way help

to reduce the level of CO2 in the environment.

bound in the plants. In other words: using these natural raw materials as a biofuel makes a significant contribution to stabilizing the ecosystem. This is because it curbs the rise of CO2 emis-sions – the greenhouse gas that is par-tially responsible for global warming, with all its dangerous consequences for the Earth’s climate and life forms. In this way, over 80 percent of CO2 emis-sions attributable to automobiles can be reduced.

20 0,0 0 0 TONNES FACILIT Y BEING PL ANNED

In the development of innovative BTL fuels (BTL = Biomass to Liquid), the Volkswagen Group has long progressed from the experimental stage. Together with Daimler, it is a partner of Choren Industries GmbH, a biofuel company based in Freiberg, Saxony. Here, a BTL facility is under construction with a planned production capacity of 15,000 tonnes per year – enough to meet the annual requirements of almost 15,000 cars. At the same time, a facility is already being planned that will produce as much as 200,000 tonnes of BTL fuel every year. This fuel is not produced at the expense of food or fodder, because it also makes use of parts of the plant that are not utilizable in any other way.

65RESPONSIBIL IT Y | GROUP TOPIC BIOM A SS FUEL S

A visionary with his feet firmly on the groundFor some people, the future is already part of the present: Dr. Wolfgang

Steiger, head of the Drivetrain Research Department, talks about the

ecological responsibility of the Volkswagen Group, new biofuels and the

engine technologies of tomorrow.

Dr. Steiger, at the latest since the United Nations Intergovernmental Panel

on Climate Change (IPCC) published its reports last year, everyone has

been talking about this issue. In connection with climate change, the

German automotive industry is repeatedly accused of failing to do its

homework in time. Can this be said of the Volkswagen Group ?

dr. steiger: No, that isn’t the case at all. If it were, I cannot imag-ine what I am supposed to have been doing in this company over

Council (W EC), which predicts an increase of between 70 and 100 percent in demand for oil and gas by 2050. It is clear for Volkswagen that there is no long-term alternative to using renewa-ble fuels based on sustainable raw mate-rials. Needless to say, crops originally cultivated to produce food cannot be harvested for fuel. However, residue

>80 % CO 2 - R E D U C T I O N P OT E N T I A L

T H A N K S TO SU N FU E L T ECH N O LO G Y

However, given its responsibility for the future, a global player such as the Volkswagen Group must view the fuel question in other contexts. Fuel pioneer Wolfgang Steiger, whose advice is sought from the White House to the Chinese Department of Commerce, is well aware of this. “We must bear in mind that demand for energy world-wide is going to increase – one reason being the emerging economic might of China and India – and that reserves of fossil fuels, i. e. crude oil and natural gas, will dwindle in the foreseeable future and that it will be increasingly difficult and expensive to tap new fields.”

PU T T I N G R ES I D U E TO G O O D U S E

This assessment is confirmed by the lat-est forecasts from the World Energy

from the production and consumption of organic goods can still be converted into biofuel.

Although conventional petrol and diesel will continue to hold sway in years to come, these will gradually be joined – and even-tually replaced – by new and traditional types of fuel. For example, the wholly bio-genic SunFuel substances can be mixed readily with conventional fuels. Natural gas is already being refined into synthetic SynFuel – a step towards the economically and ecologically sound designer fuels of the future.

Nevertheless, part of this strategy is also to continue the systematic and innova-tive development of engine technology, helping to enhance fuel efficiency, safe-

CO²

CO N V E N T I O N A L D R I V E S

Optimized and efficient: TDI and TSI

1ST G E N E R ATI O N B I O FU E L S

The first step towards reducing CO2: Biodiesel

N AT U R A L G A S A S A F U E L

Reduces emissions and costs: EcoFuel

S Y N F U E L

Synthetic fuel made out of natural gas, coal, or biomass:Designer fuel for CCSs

O I L

As free from sulfur and impurities as possible

66 DRIVING IDEA S

ADDITIONAL INFOR M ATION: SUNFUELwww.volkswagenag.com/sunfuel

ADDITIONAL INFOR M ATION: SUSTAINABILIT Y REPORT (PDF) www.volkswagenag.com > Sustainability and Responsibility

Wolfsburg is determined to optimize the charge capacity of the batteries for the electric modules before Volkswagen begins series production of hybrid cars. After all, the models should win over buyers right from the start. The road to the future is already being mapped out, with a number of different mobility sce-narios playing a decisive role. On short trips – for example in city traffic – the electric drive will take more and more of a front seat. Over longer distances, however, the combustion engine will retain the upper hand, since only liquid hydrocarbons can be stored and trans-ported in sufficient quantities in the fuel tank. “We must”, concludes Steiger, “combine the best of both worlds.”

guard resources and increase perform-ance potential. With its TDI and TSI technologies and its eight brands, the Wolfsburg-based automotive group has set quality standards in forward-look-ing drive technology. As a realistic futurist, Steiger sees parallel develop-ments here, as is the case in the fuel sector. Series production of combined petrol and diesel engines (CCS) is expected to begin by 2015. Thanks to sophisticated hybrid technology, energy recovery is coupled with electric and combustion engine drives – these tech-nologies are already being combined to great effect.

German engineers, according to Steiger, are especially thorough. By this he means that the development team in

the past ten years. In the Drivetrain department, we conduct fun-damental research for the entire Volkswagen Group – research that centers on a single question: which technologies and fuels will help vehicles to use less energy and reduce pollution ?

What’s the outlook for the future ?

In order to stem the tide of global warming, the main priority is to bring about a sustainable reduction in CO2 emissions. In the EU, passenger car traffic is responsible for generating 12 percent of these greenhouse gas emissions. We are pur-suing a development strategy that combines innovative fuels and intelligent engine technology.

Moving away from oil and towards electric engines ?

We must make a distinction here: on the one hand, finite fos-sil fuel sources must be gradually replaced by renewable fuels made from biomass. This synthetic substance, which we call

SunFuel, fits into the cycle of nature in a way that is simply revo-lutionary. When it is combusted, it releases no more CO2 than was originally absorbed from the atmosphere by the plant that provided the energy in the first place. On the other hand, the proportion of electrically produced motive power in the engines will increase, extending all the way to the use of hydrogen-based zero-emission fuel cells to charge batteries.

Is it possible that another revolution will happen before this vision be-

comes reality – after all, it is not expected for another 20 years or so ?

I would be more inclined to call it an evolution, but there is one development that will bring about a significant leap in quality in the near future: the use of SunFuel in a new generation of engines that combine the outstanding attributes of diesel and petrol powertrains.

H²CCS – COMBINED COMBUSTION SYSTEM

The best of TDI and TSI in a new generation of engines

2 N D G E N E R AT I O N B I O F U E L S

Up to 90 % reduction in CO2 through SunFuel®:BTL and cellulose ethanol

R E N E WA B L E E N E RG Y S O U RCE S

CO2 -neutral:wind, biomass, geothermal energy, water

H Y D RO G E N A N D E L EC T R I CI T Y:

Energy for emission-free drives: fuel cells and battery vehicles

67RESPONSIBIL IT Y | GROUP TOPIC BIOM A SS FUEL S

Pride in high-quality craftsmanship

A marriage of creativity and responsibility: premium products

crafted by hand using a large proportion of natural high-grade

materials, and complemented by a combination of experience

and superior technical knowledge together with a corporate

culture that centers on people. Bentley Motors in the UK is a

prime example of this.

68 DRIVING IDEA S

ave you ever been to Crewe ? If you haven’t, it’s well worth a visit. Not far from Crewe – a pretty town in the north west of England, some 45 kilo-meters from the industrial city of Manchester – is where you will find the

epitome of time-honored automotive craftsmanship: the Bentley plant. Indeed, the name Bentley alone is enough to set many a pulse racing – even among people with-out petrol in their blood.

The “Bentley” name is associated with both a legendary past and an equally rosy future: the Roaring Twenties of the last century, when the triumphant victories of the daring “Bentley Boys” at Le Mans became the stuff of legend; the royal connec-tion with Rolls-Royce since the 1930s; and, of course, the Volkswagen Group, which has continued this proud legacy of tradition and technology for the past ten years.

Purring gently, the Continental Flying Spur – a saloon with the power of 560 horses – glides along the narrow country roads from Manchester Airport to Crewe. The pas-senger, invigorated by a built-in back massage summoned at the touch of a button, senses that this kind of travel is in a class of its own. The interior of a Bentley, indi-vidually designed using natural wood and leather, and its engine, chassis and bodywork are all produced in a carefully monitored chain of processes combining exceptional

H

69RESPONSIBILIT Y | BENTLEY

DAV E P R E ECE (top right), a Bentley veteran with almost fifty years of service, was able to fulfill his dearest wish: to help build a car fit for the Queen.

craft skills and technological expertise. “37 hours of work go into the seams in the back of a seat”, one employee who has been in Crewe for five years proudly reports. She and another colleague were trained for months in preparation for this demand-ing work.

E ACH PA R T O F A B E N T L E Y I S CR E AT E D WIT H M E T I CU LO US CR A F T SM A N S H I P

That is what is exceptional about this plant: people working together in groups, constantly pooling their experience to perfect the handcrafted interior – for example the leather-covered steering wheel or the wood-paneled consoles. “What is special about Bentley is the working atmosphere”, says Dave Maddock, woodwork team leader. He has been with Bentley for over 30 years – the rule rather than the exception here. It is also quite common for employees to change their field of specialization. Before Maddock discovered his penchant for wood, he installed crankshafts in the cars. “Managers work very closely together with employees”, he stresses, “which is very motivating”. This view is also shared by the younger employees, whose training and development is a top priority for Bentley. “We are given constant guidance and assistance, and the main focus is on accumulating experience in a variety of challenging activities”, says David Irving, a budding engineer who is highly enthusiastic about Bentley’s engine technology.

In this company, the luxury product does not conf lict with the need for responsibil-ity and sustainability. Wherever natural substances are used in the production process, care is taken to ensure a closed ecological cycle: raw materials are sourced from certified suppliers, and wood and leather residue is recycled. In order to pro-tect tree species, walnut and olive wood are now used instead of mahogany. For this traditionally-minded automobile manufacturer, however, responsibility extends far beyond the production process.

“Bentley stands for

an enterprise that

combines passion

with a willingness

to take risks.”R I C H A R D C H A R L E SWO R T H ,

H E A D O F V I P A N D ROYA L R E L AT I O N S

70 DRIVING IDEA S

T H E I N - D E P T H I N D I V I D UA L

T R A I N I N G G I V E N to young employees such as Laura Lomas and David Irving is a long-standing tradition at Bentley. This guarantees the outstanding quality required by a time-honored brand that is intent on retaining its exclusivity.

“We build exceptional automobiles for people who are exceptional in a way that ben-efits many others”, is how Richard Charlesworth explains the Bentley philosophy. Among his clientele are the British Royal Family and VIPs all over the world. “Our brand”, continues Charlesworth, “stands for an enterprise that combines passion with a willingness to take risks. This creativity has a knock-on effect, leading to jobs and prosperity.” Successful people also tend to have a desire to be role models and to undertake charity work. Bentley Motors, stresses Charlesworth, lends its support to charity events and is involved in Aids benefit galas and helping children from disad-vantaged backgrounds.

FAT H E R S A N D G R A N DM OT H E R S A L R E A DY WO R K E D F O R B E N T L E Y

In the spotless plant near Crewe, the focus is also firmly on people. Only six robots are involved in the manufacturing process, which is otherwise left in the skilled hands of the 4,000-strong workforce. Many have worked for decades at Bentley, and many others are second- or third-generation employees. The record-holder is Dave Preece, who has 47 years of service under his belt. When he enthuses about building a Bentley to meet the special wishes of the Queen of England, it becomes clear that not just cars are built in Crewe, but unique specimens that are of great sentimental value to their owners. This explains why “proud” is a word that is often used by Bentley employees. Pride in a work culture that views individuality as more than a frivolous luxury, but rather as a constant challenge to meet an exclusive clientele’s need for uniqueness, while maintaining a responsible attitude towards the world’s natural resources.

For this reason, Bentleys are only ever built to order. Some 10,000 models from the Arnage and Continental series were delivered last year – naturally, in closed trans-port containers: handcrafted in Crewe. 1 Consumption and emission data can

be found on page 296 of this Report.

ADDITIONAL INFOR M ATION www.bentleymotors.com > World of Bentley

71RESPONSIBILIT Y | BENTLEY

Simply clever in the Czech Republic

72 DRIVING IDEA S

ladá Boleslav is just a 45-minute drive from Prague. The road to Škoda’s hometown passes through a number of suburbs and is lined with home

improvement and furniture stores. Here in the Czech Repub-lic, a nation with a distinct penchant for DIY, there is a uni-versal sense of a new era that even dates back to before the country joined the EU. As a key industrial nation, the innovative Czechs contributed to the economic development of Central Europe right from the start. The Czechs are often said to be like their famous Bohemian glass: clear, uncomplicated and resilient. Characteristics that are also ref lected in the cars they build.

M

Škoda is one of the oldest automobile manufacturers in the world. Its inno-

vative image – summed up by the slogan “Simply clever” – has characterized

the traditional brand throughout its long history. This is evident not only

from the superb value for money offered by Škoda vehicles, but also because

many of the details found in these cars have their roots in the sophisticated

Czech engineering that came to fruition in the 20th century.

“It is a car from the heart

of Europe”M A RÇ A L FA R R E R A S , H E A D O F M A R K E TI N G Š KO DA

Nonetheless, Mladá Boleslav – a town of 45,000 inhabitants – is also imbued with the magic of Bohemia, its pancakes, apple strudel and freshly brewed beer, and its woods, fields and cas-tles. The area around the city would make a wonderful setting for one of the popular Czech fairytale films, which is fitting, since Mladá Boleslav has a fairytale of its own – one that came true. Škoda cars have been built here for over a hundred years. As recently as the 1970s and 1980s, Škodas were the butt of many unkind jokes, widely dismissed as tinpot cars for which spare parts never arrived in less than a month. Nonetheless, they were among the best of what the then Eastern Blochad to offer.

73RESPONSIBIL IT Y | ŠKODA

1895VÁCL AV K L EM E N T I S Q U I CK O F F T H E M A R K ,

L AY I N G T H E F O U N DAT I O N STO N E F O R WH AT L AT E R B EC A M E T H E

Š KO DA WO R K S TO G E T H E R WI T H M ECH A N I C VÁCL AV L AU R I N .

AC T I O N S S PE A K LO U D E R T H A N WO R D S

At the beginning of the 20th century, the Czechs were still among the pioneers in automobile manufacturing. It all began, strangely enough, with a bicycle. Václav Klement, a technophile bookseller from Mladá Boleslav, had purchased a German-made bicycle only for its frame to bend out of shape soon afterwards. The disgruntled customer then sent a letter – in Czech, naturally – to the branch of the Dresden-based bicycle manufacturer in the Bohemian city of Ústí nad Labem requesting repair. According to Lukáš Nachtmann, a histo-rian in the Škoda Auto Museum, Klement received a curt reply to the effect that he should write in an intelligible language.

Václav Klement was quick to respond: by opening his own bicy-cle factory together with mechanic Václav Laurin in 1895. Just three years later, the f lourishing little company expanded its range to include bicycles with auxiliary engines. The following year, the small-town Czechs presented a motorized bicycle driven by an engine integrated in the frame between the wheels – the same basic construction that is still found in all genera-

tions of motorcycle to this day. “A real milestone in the history of Czech engineering was in 1905, when Laurin and Klement built their first car, the Voiturette A”, recounts Nachtmann with visible enthusiasm and pride in his fellow countrymen. A milestone indeed, as this design means that the Škoda brand, which came by its name in 1925 when Laurin & Klement joined forces with heavy engineering company Škoda Pilsen, has ties with one of the oldest remaining automotive plants in the world.

SU CCESS I N A L L CO R N E R S O F T H E G LO B E

In the 1920s and 1930s, Škoda established itself as one of the best-known automobile manufacturers in Europe. The Rapid, Popular and Superb models – the latter has now been revived – went on legendary trips with globetrotters to exotic, far-f lung regions such as Africa and the Sahara, India and the Himalayas. The solid design and driving characteristics of the Škoda cars were more than a match for the rough terrain, making the Czech company an international household name. Needless to

“It is no accident that ‘Simply clever’

is our brand slogan”F R A N K S CH Ä F E R , I N T E R I O R D ES I G N , Š KO DA

F R A N K S C H Ä F E R ,

Interior Design at Škoda, played a leading role in designing the interior of the Škoda Fabia

74 DRIVING IDEA S

You almost certainly benefit from Czech inventions every day – even though you have probably never heard of Jakob Christof Rad, Jindrich Waldes, or Prokop Diviš. These innova-tive individuals enhanced our daily lives and safety with sug-ar cubes, snap fasteners and

lightning rods.

Today, many

inventions still originate

in the Czech Republic, a prime example being Memrec – a device for controlling comput-ers by eye movement. Or Nano-spider, a new technology for weaving nanofibers. It’s clear that the Škoda slogan – “Simply clever“ – also applies to many other modern Czech inventions.

C Z ECH E N G I N E E R I N G

From sugar cubes to Memrec

say, this also improved its standing on home soil. “Czech engi-neering” was a common boast back then, and one that has now reattained its former glory thanks to Mladá Boleslav’s finest.

“It is no accident that ‘Simply clever’ is our brand slogan”, explains Frank Schäfer, who is responsible for Interior Design at Škoda and also played a leading role in designing the interi-or of the new Škoda Fabia. “Simply clever” stands for high util-ity value and decidedly family-friendly design. The luggage compartment is the largest in its class and comes with bag hooks and other intelligent solutions; its size can also be halved by means of an adjustable hat rack. “We always fight for every last cubic centimeter”, says Schäfer. The practical nature of the Škoda can even be seen from its exterior design. “Sophisticated and robust, clear and uncluttered”, is how Jens Manske, Head of Design at Škoda, describes the company’s design guidelines. Along with the technology that is enhanced by rigorous testing within the Volkswagen Group, one of the reasons for the brand’s lasting success is its functional design.

This can also be seen from the delivery figures, with both the Fabia and the Octavia passing the million mark as early as 2004. For five years, Škoda has been an established fixture in the top ten of the German registration statistics. “It is a car from the heart of Europe that is now sold in 100 countries world-wide”, sums up Marçal Farreras, Head of Marketing at Škoda. A native of Spain, Farreras speaks English with his Czech colleagues – another way in which Škoda contributes to the Europe of the present and the future.

LU K Á Š N ACH TM A N N ,

a historian at the Škoda-Museum, describes the work of Laurin & Klement as “a real milestone in the history of Czech engineering”.

ADDITIONAL INFOR M ATION www.skoda-auto.com > About Škoda > Tradition

ar cubes, snap fastenerslightning rod

Todma

investstistill ori

i th C hh R bli

75RESPONSIBIL IT Y | ŠKODA

Divisions

78 Brands and Business Fields

80 Volkswagen Passenger Cars

82 Audi

84 Škoda

86 SEAT

88 Bentley

90 Volkswagen Commercial Vehicles

92 Financial Services

78

GROUP STRUCTURE

The Volkswagen Group consists of two divisions:

Automotive and Financial Services. The activities of the

Automotive Division include the development of vehicles

and engines, as well as the production and sale of

passenger cars, commercial vehicles, trucks and buses,

and the genuine parts business. The Financial Services

Division’s portfolio of services includes dealer and

customer financing, leasing, banking and insurance

activities, and fleet management.

We dissolved the former Volkswagen and Audi brand

groups at the beginning of fiscal year 2007. The individual

Group brands have now been placed on an equal,

independent footing. On the following pages, we explain

the key volume and financial data relating to the individual

brands and to the Financial Services Division, reflecting

the Group structure in 2007. Production figures and

deliveries to customers are presented according to

product line, while unit sales figures refer to vehicles sold

by each brand company, including vehicles of other Group

brands. To enhance comparability, the explanations of

operating profit by brand and business field for 2006 are

based on figures before special items.

In addition, we present the sales and sales revenue on

our markets: Europe/Remaining markets, North America,

South America/South Africa and Asia-Pacific.

KEY FIGURES BY MARKET

In fiscal year 2007, the Volkswagen Group increased

its sales by 8.2% year-on-year to a total of just under

6.2 million vehicles. Sales revenue was €108.9 billion,

up 3.8% on 2006.

In Europe/Remaining markets, sales in 2007

increased by 3.3% year-on-year to 3.7 million units. As a

result, sales revenue rose by 3.9% to €77.7 billion.

VOLKSWAGEN GROUP

Division/

Segment

Automotive Division Financial Services

Division

Brand/Business

Field

Volkswagen

Passenger

Cars

Audi Škoda SEAT Bentley Volkswagen

Commercial

Vehicles

Other Dealer and customer

financing

Leasing

Insurance

Fleet business

Brands and Business Fields Fascinating brands and innovative financial services for our customers worldwide

DIVISIONS COR PORATE GOVERNANC E MANAGEMENT R EPORT F I NANC IAL STATEMENTS 2007 ADDITIONAL I N FORMATION 79

> Brands and Business Fields Volkswagen Passenger Cars Audi Škoda SEAT Bentley Volkswagen Commercial Vehicles Financial Services

In North America, we almost reached the previous year’s

sales in fiscal year 2007, with the Golf and Eos models

recording encouraging growth rates. Overall, sales

revenue fell by 9.5% year-on-year to €13.2 billion. This

decline is due for the most part to unfavorable exchange

rates and a modified model mix.

Sales growth in the South American/South African

markets continued in 2007, increasing by a total of 19.1%

to 0.9 million units. The most significant growth rates

here were recorded in Brazil and Argentina. Sales revenue

increased by 18.2% year-on-year to €10.4 billion. As well

as higher sales, this can be attributed to the further

increase in the external value of the Brazilian real.

Sales in the Asia-Pacific region – including our joint

venture companies in China – were 1.1 million units, an

increase of 27.7% on the previous year. Sales revenue

increased by 12.8% to €7.5 billion. This figure does not

include the sales of the joint ventures in China, as these

are accounted for using the equity method.

KEY FIGURES BY BRAND AND BUSINESS FIELD

Vehicle sales Sales revenue Sales to Operating

third parties result

thousand vehicles/€ million 2007 2006 2007 2006 2007 2006 2007 2006

Volkswagen Passenger Cars 3,664 3,451 73,944 70,710 60,201 58,839 1,940 918

Audi 1,200 1,139 33,617 31,720 21,078 20,521 2,705 2,054

Škoda 620 562 8,004 7,186 5,925 5,378 712 515

SEAT 411 419 5,899 5,874 4,375 4,433 8 – 159

Bentley 10 10 1,376 1,340 1,294 1,251 155 137

Commercial Vehicles 427 388 9,297 8,092 6,548 5,732 305 138

VW China1 930 694

Other – 1,070 – 943 – 33,385 – 28,918 750 743 – 6312

– 632

Automotive Division 6,192 5,720 98,752 96,004 100,171 96,897 5,194 3,540

Financial Services Division 10,145 8,871 8,726 7,978 957 843

Group before special items 108,897 104,875 108,897 104,875 6,151 4,383

Special items – – 2,374

Volkswagen Group 6,192 5,720 108,897 104,875 108,897 104,875 6,151 2,009

1 The sales revenue and operating results of the joint venture companies in China are not included in the figures for the Group. The Chinese companies are accounted

for using the equity method and recorded an operating profit (proportionate) of €294 million (€108 million).

2 Mainly intragroup items recognized in profit or loss, in particular from the elimination of intercompany profits.

KEY FIGURES BY MARKET

Vehicle sales1

Sales revenue

thousand vehicles/€ million 2007 2006 2007 2006

Europe/Remaining markets 3,743 3,624 77,703 74,755

North America 512 530 13,219 14,611

South America/South Africa 857 719 10,443 8,835

Asia-Pacific2 1,080 846 7,532 6,674

Volkswagen Group2 6,192 5,720 108,897 104,875

1 All figures shown are rounded, so minor discrepancies may arise from addition of these amounts.

2 The sales revenue of the joint venture companies in China are not included in figures for the Group and the Asia-Pacific market.

80

BUSINESS DEVELOPMENT

The Volkswagen Passenger Cars brand continued its

positive development over the past fiscal year. In 2007, we

set ourselves the target of becoming the most innovative

volume manufacturer in the world within the space of a

few years. The new brand slogan “Volkswagen – Das Auto”

reaffirms this claim.

At 3.7 million, deliveries to customers in fiscal year 2007

were 7.8% higher than in the previous year; however, this

varied from market to market. While deliveries to

customers in Western Europe fell by 3.6%, we recorded a

marked increase in sales in Central and Eastern Europe

(+29.7%). The brand also achieved impressive growth

rates in Brazil (32.4%) and China (24.5%). Demand in

North America remained at the previous year’s level.

Total unit sales were also 3.7 million vehicles;

compared with the previous year, this is an increase of

6.2%, which is attributable above all to the improved

market situation in Brazil. Demand increased worldwide

for the Polo, Golf, Touran, Jetta, Passat and Eos models.

Our new Golf Variant and Tiguan models met with a

positive reception in the market.

The production volume of the Volkswagen Passenger

Cars brand was 3.7 million units in 2007, an improvement

of 12.0% on 2006. The most significant increases in

production figures were recorded by the Wolfsburg and

Zwickau plants, and by the production facilities in Mexico

and Argentina.

Volkswagen Passenger Cars brand Extended model range and cost optimization measures prove effective

The Volkswagen Passenger Cars brand made considerable progress in 2007

towards its goal of becoming the most innovative volume manufacturer, with

the best quality in each vehicle class. Operating profit was more than double

that of the previous year.

Tiguan


>

Brands and Business Fields Volkswagen Passenger Cars Audi Škoda SEAT Bentley Volkswagen Commercial Vehicles Financial Services

VOLKSWAGEN PASSENGER CARS BRAND

2007 2006 %

Deliveries (thousand units) 3,663 3,396 + 7.8

Vehicle sales 3,664 3,451 + 6.2

Production 3,717 3,319 + 12.0

Sales revenue (€ million) 73,944 70,710 + 4.6

Operating profit 1,940 918 x

as % of sales revenue 2.6 1.3

SALES REVENUE AND EARNINGS

In 2007, the Volkswagen Passenger Cars brand generated

sales revenue of €73.9 billion, 4.6% more than in the

previous year. Operating profit was €1.9 billion, a clear

improvement on the previous year. This increase was

primarily attributable to the successfully implemented

restructuring measures, the systematic continuation of

performance enhancement measures and the higher level

of unit sales. The operating return on sales improved from

1.3% in 2006 to 2.6% in 2007. As part of its Strategy 2018,

the Volkswagen Passenger Cars brand aims to generate

sales of 6.6 million vehicles worldwide in approximately

ten years, thereby increasing its global market share to

9%.

PRODUCTION

Vehicles 2007 2006

Golf 763,491 693,376

Passat/Santana 751,764 701,074

Jetta/Bora 630,355 533,499

Polo 449,602 401,551

Gol 320,604 278,051

Fox 206,125 201,888

Touran 197,941 178,122

Polo Classic/Sedan 86,861 67,237

Touareg 72,477 60,802

Eos 55,560 39,437

Suran 45,690 32,601

New Beetle 40,124 43,653

New Beetle Cabriolet 26,752 30,007

Parati 23,953 25,994

Sharan 23,807 26,852

Tiguan 16,272 0

Phaeton 5,711 5,024

3,717,089 3,319,168

Golf Variant

FURTHER INFORMATION www.volkswagen.com

82


The Audi brand is one of the world’s fastest-growing

premium brands and aims to establish itself as the leader

in this segment. 2007 was another successful year for Audi.

Not only was a further model series launched – the Audi A5 –

but the brand also presented its new Audi A4 saloon, a

worthy successor to its best-selling model.

The positive response to the new models was one of the

reasons why deliveries to customers increased by 6.5%

year-on-year to a total of 967 thousand vehicles. The Audi

brand recorded rising sales on virtually all key markets.

Deliveries to customers in the US passenger car market

were 3.8% higher than in 2006.

The Audi brand increased its unit sales by 5.4% year-

on-year to 1,200 thousand units (of which 966 thousand

were Audi and Lamborghini vehicles). Demand increased

in particular for the Audi TT Coupé, Audi TT Roadster,

Audi A6 allroad quattro and Audi Q7 models. With a total of

2,420 vehicles sold, Lamborghini was up 20.3% on the

previous year.

In 2007, a total of 978 thousand Audi vehicles were

produced (+6.0%). In May 2007, the Brussels plant started

production of the Audi A3 Sportback. Starting in 2009, the

new Audi A1 will also be produced there. At the beginning

of 2008, the Audi brand also commenced production at

Aurangabad in India. Lamborghini produced 2,580 vehicles

(+23.2%). The increase in the number of Gallardo* and

Murciélago Roadster* models produced was particularly

encouraging.

Fahrzeuge 1

Audi brand Our goal is to become the world’s leading premium manufacturer

In 2007, the Audi brand won over many customers with the

new Audi A5 series and set its twelfth consecutive delivery record.

Lamborghini is also continuing its successful growth.

Audi A4

* Consumption and emission data can be found on page 296 of this report.


>



Owing primarily to the improved unit sales situation, sales

revenue generated by the Audi brand increased by 6.0% to

€33.6 billion in 2007. Operating profit amounted to

€2.7 billion, thus exceeding the previous year’s figure by

31.7%. The operating return on sales increased from

6.5% in 2006 to 8.0% in 2007. The figures for Lambor-

ghini contained in those for the Audi brand also recorded

positive growth.

AUDI BRAND

2007 2006 %

Deliveries (thousand units) 967 907 + 6.5

Vehicle sales 1,200 1,139 + 5.4

Production 978 923 + 6.0


Operating profit 2,705 2,054 + 31.7


PRODUCTION

Vehicles 2007 2006

Audi

A4 289,806 312,786

A3 231,117 231,752

A6 227,502 217,183

Q7 77,395 72,169

TT Coupé 40,417 21,461

A5 25,549 487

Cabriolet 24,346 28,324

A8 22,182 22,468

TT Roadster 16,349 2,214

A6 allroad quattro 16,340 11,838

R8 4,125 164

Q5 162 0

975,290 920,846

Lamborghini

Gallardo Spyder 1,015 1,025

Gallardo 936 626

Murciélago 423 323

Murciélago Roadster 206 121

2,580 2,095

Audi brand 977,870 922,941

Audi A5

FURTHER INFORMATION www.audi.com

84


Škoda is one of the oldest automobile manufacturers in

the world, with an impressive success story that goes back

many years. In fiscal year 2007, the brand once again set

new records for all key performance indicators, thanks to

its strategy of designing “simply clever” vehicles. The new

Škoda Fabia made its debut: a vehicle that boasts a more

spacious design than its predecessor while retaining

virtually the same external dimensions.

A record total of 630 thousand Škoda vehicles were

delivered in fiscal year 2007, up 14.6% on the previous

year. The brand recorded rising sales figures on all major

markets. It also achieved impressive growth rates in

France and Italy. In 2007, Škoda successfully launched its

vehicle range in the Chinese passenger car market.

Škoda brand unit sales improved by 10.2% year-on-

year to 620 thousand units. There was not only a marked

increase in sales of the Octavia series, but also in

particular of Škoda Roomster models. The new Škoda

Fabia was well received by the market.

In fiscal year 2007, Škoda produced 661 thousand

units, 18.8% more than in the previous year. In November

2007, the first Škoda vehicles were produced in Kaluga,

Russia.

Škoda brand “Simply clever” – Škoda brand vehicles are very popular all over the world

Škoda, a brand with one of the longest traditions in the automotive world,

again generated record sales in 2007. The new Škoda Fabia is significantly

more spacious than its predecessor.

Škoda Fabia


>



At €8.0 billion, sales revenue generated by the Škoda

brand in fiscal year 2007 was 11.4% higher than in the

previous year. This increase is mainly attributable to the

record level of sales. Operating profit increased by

€197 million to €712 million. This makes 2007 the most

profitable year in the history of the brand. The operating

return on sales was 8.9% (7.2%). In the future, Škoda will

stay true to its proven recipe for success: developing

“simply clever” vehicles that will continue the brand’s

long-running success story.

ŠKODA BRAND

2007 2006 %


Vehicle sales 620 562 + 10.2



Operating profit 712 515 + 38.4


PRODUCTION

Vehicles 2007 2006

Octavia 319,893 269,774

Fabia 243,576 240,051

Roomster 75,875 25,055

Superb 21,339 20,403

Fabia Praktik 0 1,064

660,683 556,347

Škoda Roomster

FURTHER INFORMATION www.skoda-auto.com

86


With its new Altea Freetrack model, SEAT struck out in a

new direction in fiscal year 2007. The first all-road vehicle

in the history of the Spanish company has joined the

sporty and design-oriented model range, a move that met

with a positive reception from the market. A foretaste of the

brand’s future emotional design line was given in fiscal

year 2007 with the SEAT Tribu concept car. The recently

constructed preproduction center at the Martorell plant

will also play a key role in future product developments, as

will the new SEAT Design Center.

In spite of a difficult market environment, 431 thou-

sand vehicles were delivered to customers in 2007, which

was slightly above last year’s level. SEAT recorded sub-

stantial growth rates on the French and UK markets, as

well as in Central and Eastern Europe. Demand increased

in particular for the SEAT Leon and SEAT Altea XL models.

Although significant destocking took place in the

dealer organization in fiscal year 2007, sales to SEAT

brand dealers almost reached the level of the previous

year.

The number of vehicles produced in fiscal year 2007

was 413 thousand units, 2.3% fewer than in the previous

year.

SEAT brand Growth through sporty and design-oriented models

The program introduced to improve earnings performance started taking

effect: SEAT returned to profitability in fiscal year 2007. Further measures are

now being implemented to deliver sustainable growth.

SEAT Altea Freetrack


>


SEAT BRAND


In 2007, sales revenue for the SEAT brand was on a level

with the previous year at €5.9 billion. Following an

operating loss of €159 million in 2006, an operating profit

of €8 million was generated in fiscal year 2007. This saw

the SEAT brand returning to profitability a year earlier

than expected and in turn illustrates the success of the

program introduced to improve earnings performance.

The operating return on sales improved from -2.7% in

2006 to 0.1% in 2007. With the help of further perfor-

mance enhancement measures, SEAT is aiming to deliver

sustainable growth which, among other things, will

increase unit sales and ROI substantially.

PRODUCTION

Vehicles 2007 2006

Ibiza 172,206 183,848

Leon 120,630 126,511

Altea/Toledo 76,121 66,901

Cordoba 29,747 31,058

Alhambra 14,242 14,352

412,946 422,670

.

SEAT Altea XL

2007 2006 %


Vehicle sales 411 419 – 2.0

Production 413 423 – 2.3


Operating profit/loss 8 – 159 x

as % of sales revenue 0.1 – 2.7

FURTHER INFORMATION www.seat.com

88


In fiscal year 2007, Bentley delivered over 10,000 vehicles

to customers for the first time ever. This was a milestone

in the history of Bentley and cemented its leading position

in the premium vehicle segment. Sales increased by 6.7%

year-on-year to 10,014 vehicles. Much of this success was

attributable to continued high market acceptance of the

Bentley Continental GT Cabriolet*. Over the past year,

Bentley presented two impressive new vehicles. With the

Bentley Brooklands*, a third model was added to the

Arnage series. Another factor was the Continental GT

Speed Coupé* – the most powerful Bentley ever produced.

Bentley enjoyed rising sales figures in virtually all

major markets. Substantial growth rates were achieved in

the passenger car markets in Western Europe and in the

Asia-Pacific region, notably in China.

9,600 Bentley brand vehicles were sold in 2007.

Demand was particularly strong for the Azure* and

Continental GT Cabriolet* models. Owing to recent or

planned model changes, there was a decline in unit sales

of the Continental Flying Spur* and Continental GT

Coupé*.

In fiscal year 2007, the Bentley brand produced a total

of 9,972 vehicles, thus matching the high level achieved in

the previous year.

Bentley brand Customer deliveries top 10,000 vehicles for the first time

2007 was the best fiscal year in Bentley’s history.

A third model – the Brooklands – was added to the Arnage series.

Bentley Brooklands

* Consumption and emission data can be found on page 296 of this report.


>



The Bentley brand generated sales revenue of €1.4 billion

in 2007, up 2.7% on the previous year. As a result,

operating profit rose by 13.0% to €155 million. These

improvements were mainly due to the model and cost

structure. The operating return on sales was 11.2%

(10.2%). In the future, Bentley will maintain its leading

position in the premium vehicle segment.

BENTLEY BRAND

2007 2006 %

Deliveries 10,014 9,387 + 6.7

Vehicle sales 9,600 9,742 – 1.5

Production 9,972 10,036 – 0.6


Operating profit 155 137 + 13.0


PRODUCTION

Vehicles 2007 2006

Continental GT Cabriolet 4,847 1,742

Continental Flying Spur 2,270 4,042

Continental GT Coupé 1,547 3,611

Continental GT Speed Coupé 593 –

Arnage 357 464

Azure 350 177

Brooklands 8 0

9,972 10,036

Bentley Continental GT Speed Coupé

FURTHER INFORMATION www.bentleymotors.com

90


In fiscal year 2007, Volkswagen Commercial Vehicles

continued the positive development of recent years. At

489 thousand vehicles, deliveries to customers worldwide

during the reporting period were 10.7% higher than in

2006. Sales figures increased in the key markets of Europe

and in South America. In Brazil, an impressive growth rate

of 32.0% was achieved. At the end of 2007, the Caddy Maxi

was added to the Volkswagen Commercial Vehicles model

range.

Sales to the dealer organization were 427 thousand units,

up 10.1% on 2006.Sales of the Caddy and Multivan/Trans-

porter models continued to increase in 2007, once again

making a significant contribution to the success in the

commercial vehicles business. Worldwide sales of the

Caddy, which is available both as a commercial vehicle

and as the Caddy Life, a passenger car, amounted to

145 thousand vehicles (+5.6%). A total of 213 thousand

Caravelle/Multivan and Transporter models were sold, an

increase of 5.3% compared with the previous year.

In 2007, worldwide sales of heavy commercial vehicles

manufactured in Brazil increased to 47,206 units

(+26.4%). A total of 39,409 trucks were sold in the 5 to

45 tonnes weight classes, 27.3% more than in the previous

year. This enabled market leadership in Brazil to be

maintained. Sales of buses were 7,314 (6,383) thousand

units.

In fiscal year 2007, Volkswagen Commercial Vehicles

produced 435 thousand units, an increase of 1.8% on the

previous year. This figure does not include the Crafter

models manufactured in the Daimler plants in Düsseldorf

and Ludwigsfelde. The main production facility in Hanover

manufactured a total of 162 thousand (170 thousand) units

of the Caravelle/Multivan and Transporter models. At the

Poznan plant in Poland, production was on a level with the

previous year, despite the start-up of the Caddy Maxi. The

Brazilian plant in Resende produced 47,082 heavy trucks

and bus chassis, 33.7% more than in the previous year.

Volkswagen Commercial Vehicles Powerful versatility for all transport needs

60 years after the VW Bus was launched, the Volkswagen Commercial Vehicles

Multivan is still enjoying great popularity. There was also strong demand for

the Caddy and heavy commercial vehicles.

Caddy Maxi


>


VOLKSWAGEN COMMERCIAL VEHICLES

2007 2006 %


Vehicle sales 427 388 + 10.1



Operating profit 305 138 x



In 2007, Volkswagen Commercial Vehicles generated sales

revenue of €9.3 billion, thereby exceeding the previous

year’s figure by 14.9%. This growth was primarily

attributable to further increases in the Caddy, Caravelle/

Multivan and Transporter models and in heavy commercial

vehicles.

As a result, operating profit increased to €305 million, an

increase of €167 million on 2006. The operating return on

sales improved from 1.7% in 2006 to 3.3% in 2007. In the

coming years, the success of Volkswagen Commercial

Vehicles will be continued with additional models.

PRODUCTION

Vehicles 2007 2006

Caravelle/Multivan, Kombi 119,535 119,583

Transporter 90,762 84,568

Caddy 79,830 69,736

Caddy Kombi 65,675 70,349

Trucks 39,083 28,624

Saveiro 31,221 26,574

Omnibus 7,771 6,444

Golf Pickup 812 916

LT 0 18,068

LT Kombi 0 2,316

434,689 427,178

Multivan

FURTHER INFORMATION www.volkswagen-commercial-vehicles.com

92

STRUCTURE OF THE FINANCIAL SERVICES DIVISION

The Financial Services Division’s portfolio of services

includes dealer and customer financing, leasing, banking

and insurance activities, and fleet management business.

Volkswagen Financial Services AG has been responsible

for coordinating the Group’s global financial services

activities since 2006. Following recent reorganization

measures, the Volkswagen Group’s Latin American

financial services companies are now the responsibility of

Volkswagen Financial Services AG. This does not affect the

legal independence of the North American subsidiaries.

The Volkswagen Financial Services Group includes

Volkswagen Financial Services AG, Volkswagen Bank

GmbH and Volkswagen Leasing GmbH.


The successful mobility packages offered through

Volkswagen Bank GmbH have once again established

Volkswagen Financial Services AG as a trend-setter among

the financial services companies operating in the

automotive sector. The full-service packages, which

consist of three-way financing at a 0.9% effective interest

rate, insurance cover and an extended warranty, meet

customers’ need for peace-of-mind mobility at predictable

costs. In 2007, it again led to a marked increase in the

volume of business. After the offer – which was originally

only available for Volkswagen Passenger Cars brand

vehicles – was extended to further Group brands, there

was an increased focus on implementing it in inter-

national markets in 2007. The mobility packages are

now available to our customers in Poland and Italy, where

they have met with a very positive reception. In the

Netherlands, a pilot project was started during the

reporting period.

As part of the reorganization of financial services

activities in Latin America, Volkswagen Financial Services

AG and HSBC Argentina entered into a cooperation in

fiscal year 2007. This aims to offer customers of

Volkswagen and Audi dealerships in Argentina a range of

financial services relating to vehicle purchases. In fiscal

year 2007, Volkswagen Financial Services AG was granted

a license to operate its own automotive bank in Mexico.

After receiving approval from the Mexican banking

supervisory authorities, Volkswagen Bank Mexico will

commence business in 2008 and assume a pioneering role

in the Mexican market.

In 2007, rating agencies Moody’s Investors Service

and Standard & Poor’s carried out their regular update of

credit ratings. This confirmed last year’s rating as well as

the existing rating distinction between Volkswagen Bank

GmbH and Volkswagen Financial Services AG and

Volkswagen AG. For the second consecutive year, both

agencies awarded Volkswagen Bank GmbH a credit rating

one notch higher than Volkswagen Financial Services AG

and Volkswagen AG.

A total of 2.4 million new finance, leasing and

insurance contracts were signed in fiscal year 2007,

thereby maintaining the high level of the previous year.

The number of contracts as of December 31, 2007,

increased by 0.5% year-on-year in the Customer

Financial Services Division Our full-service packages offer customers peace-of-mind mobility at predictable costs

With our focus on mobility packages, the wishes of our customers are now

anchored firmly at the heart of our offering. Business volume and profitability

increased compared with the previous year.


>


Financing/Leasing area and by 12.6% in the Service/

Insurance area to a total of 6.6 million contracts. The

share of vehicles leased or financed as a proportion of

total delivery volumes in the Volkswagen Group matched

the high level of the previous year, based on unchanged

credit criteria. The direct banking business at Volkswagen

Bank continued its positive development in fiscal year 2007.

As of December 31, 2007, Volkswagen Bank direct managed

around 973,199 accounts, a year-on-year increase of

10.2%. Deposits amounted to €9.6 billion (+9.0%).

In our fleet management business, the number of

contracts recorded by our LeasePlan joint venture as of

December 31, 2007, was 1.3 million, and was thus 4.5%

higher than the figure at the end of 2006.


In 2007, the Financial Services Division generated sales

revenue of €10.1 billion, thereby exceeding the previous

year’s figure by 14.4%. Operating profit improved by

€114 million to €957 million despite the negative impact

of the crisis in the US mortgage market and increasing

price competition. This means that the Division was again

a major contributor to the Volkswagen Group’s profit.

FINANCIAL SERVICES DIVISION

2007 2006 %

Number of contracts thousands 6,602 6,337 + 4.2

Customer financing 3,097 3,155 – 1.8

Leasing 1,336 1,256 + 6.3

Service/insurance 2,169 1,926 + 12.6

Receivables1 from € million

Customer financing 28,002 26,718 + 4.8

Dealer financing 10,565 9,623 + 9.8

Leasing agreements 13,775 13,275 + 3.8

Direct banking deposits € million 9,620 8,827 + 9.0

Total equity and liabilities € million 68,603 64,518 + 6.3

Equity € million 7,136 6,185 + 15.4

Liabilities2 € million 58,630 55,734 + 5.2

Equity ratio % 10.4 9.6

Return on equity before tax3 % 16.1 16.9

Leverage4 8.2 9.0

Operating profit € million 957 843 + 13.5

Profit before tax from continuing operations € million 1,069 1,019 + 4.9

Employees at Dec. 31 7,298 7,154 + 2.0

1 Including allocation of consolidation adjustments between the Automotive and Financial Services divisions.

2 Excluding provisions and deferred tax liabilities.

3 Profit before tax as % of average equity (continuing operations).

4 Liabilities as % of equity.

FURTHER INFORMATION www.vwfsag.de

Corporate Governance

96 Corporate Governance Report

100 Remuneration Report (Part of the Management Report)

104 Structure and Business Activities (Part of the Management Report)

108 Executive Bodies (Part of the Notes to the Consolidated Financial Statements and the Annual Financial Statements of Volkswagen AG)

96

CORPORATE MANAGEMENT IN LINE WITH THE

RECOMMENDATIONS OF THE GERMAN CORPORATE

GOVERNANCE CODE

The German Corporate Governance Code incorporates

significant statutory provisions, together with inter-

nationally and nationally recognized standards of

corporate governance elaborated and revised by the

responsible Government Commission. Compliance with

the recommendations and suggestions set out in the Code

is designed to ensure good corporate governance and

supervision. The recommendations of the German

Corporate Governance Code therefore provide an

important basis for the activity of the Board of

Management and Supervisory Board of Volkswagen AG.

Responsible corporate governance and the trust of all

interest groups help to continuously increase the value of

the Company. We strengthen this trust by creating

transparency and thus meet national and international

investors’ steadily increasing demands for information.

DECLARATION OF CONFORMITY

On December 20, 2007, the Board of Management and

Supervisory Board of Volkswagen AG issued the statutory

declaration of conformity with the German Corporate

Governance Code as required by section 161 of the

Aktiengesetz (AktG – German Stock Corporation Act). They

declared that they had complied without qualification with

the recommendations of the Government Commission on

the German Corporate Governance Code as issued on

June 12, 2006 until the release of the revised version on

July 20, 2007.

In the declaration, the Board of Management and

Supervisory Board of Volkswagen AG also declared that

they complied and continue to comply with the

recommendations of the Government Commission on the

German Corporate Governance Code as revised and

issued on June 14, 2007 with one exception. The

exception relates to the formation of a Nomination

Committee (article 5.3.3 of the Code). Volkswagen AG has

Corporate Governance Report Responsibility and Transparency

The trust of our customers and investors is crucial for a sustainable increase in

the value of our Company. Transparent and responsible corporate governance

is the highest priority in our daily work. This is why the Board of Management

and the Supervisory Board comply with the recommendations of the current

German Corporate Governance Code as issued on June 14, 2007 with only one

qualification.


> Corporate Governance Report Remuneration Report Structure and Business Activities Executive Bodies

a Supervisory Board with a Presidium, a Mediation

Committee and an Audit Committee, as well as a

Shareholder Business Relationships Committee. The

Presidium of the Supervisory Board, which consists of six

members, is responsible in particular for the preparation

of the Supervisory Board’s resolutions. This also includes

in particular the proposal of suitable candidates for the

Supervisory Board to recommend for election to the

Annual General Meeting. In the opinion of the entire

Supervisory Board, an additional Nomination Committee

would only increase the number of committees without

improving the work of the Supervisory Board.

The current joint declaration of conformity by the

Board of Management and the Supervisory Board under

section 161 of the AktG has been published on our

website, www.volkswagenag.com/ir, under the heading

“Corporate Governance”, menu item “Declarations of

Conformity”.

In addition, the Volkswagen Group will largely comply

with the suggestions of the Code. However, it still has no

plans to implement the suggestion made in the Code to the

effect that one-time variable components tied to business

performance should be taken into account in setting the

remuneration of the Board of Management (article 4.2.3,

clause 3 of the Code) and that long-term performance

should be taken into account in setting the remuneration

of the Supervisory Board (article 5.4.7, clause 5 of the

Code). We intended to continue pursuing the debate on

this matter in professional circles. The Company also does

not intend to comply with the suggestion to provide for a

cap on payments of no more than two years’ remuneration

when entering into Board of Management agreements,

and a cap of no more than 150% on payments in the event

of premature termination of membership of the Board of

Management (article 4.2.3, clauses 9 to 11 of the Code).

Doubt is cast in professional circles on the effectiveness of

such contractual clauses and this reduces the ability of the

Supervisory Board of Volkswagen AG to act without, on the

other hand, offering significant advantages in view of the

applicable legal situation.

In their declaration of conformity on December 5, 2007,

the Board of Management and Supervisory Board of

AUDI AG declared that they largely complied with the

recommendations of the Code as issued on June 12, 2006

until the release of the revised version on July 20, 2007.

However, they included the qualifications that the

remuneration paid to members of the Supervisory Board

(article 5.4.7, subsection 3, sentence 1 of the Code) is not

disclosed individually and that members are not elected to

the Supervisory Board on an individual basis (article

5.4.3, sentence 1 of the Code). The Board of Management

and the Supervisory Board of AUDI AG also declared that

they complied and continue to comply with the

recommendations as revised on June 14, 2007 and issued

on July 20, 2007. However, the above-mentioned

qualifications continued and continue to apply, as is the

case with qualification that the Supervisory Board has not

formed a Nomination Committee (article 5.3.3 of the

Code). The declaration of conformity is published at

www.audi.com

Additionally, the following reservations apply at

AUDI AG with regard to the suggestions contained in the

Code: The Annual General Meeting of AUDI AG is not

broadcast on the Internet (article 2.3.4 of the Code). There

is therefore no need to enable absent shareholders to

contact the company's proxies (article 2.3.3, clause 3,

subclause 2 of the Code) during the Annual General

Meeting. In addition, all qualifications stated with regard

to Volkswagen AG also apply to AUDI AG.

DECLARATION OF CONFORMITY OF VOLKSWAGEN AG www.volkswagenag.com/ir

DECLARATION OF CONFORMITY OF AUDI AG www.audi.com

98

COOPERATION BETWEEN THE BOARD OF MANAGEMENT AND

THE SUPERVISORY BOARD

The Board of Management provided the Supervisory

Board with regular, complete and prompt verbal and

written reports on all key issues for the Volkswagen Group

relating to planning, the development of business, the

position of the Group including the risk situation and risk

management. In the future, the Audit Committee will look

at compliance issues even more intensively, as provided

for in article 3.4 of the Code. A corresponding clarification

has been made to the Audit Committee’s rules of

procedure by way of a resolution by the Supervisory Board.

COMPLIANCE

Compliance is defined in article 4.1.3 of the German

Corporate Governance Code as follows: The Management

Board ensures that all provisions of law and the enter-

prise’s internal policies are abided by and works to

achieve their compliance by Group companies. The

conformity of our actions with both legal and internal

requirements and ethical principles forms an integral part

of Volkswagen’s corporate culture. In order to ensure

compliance with statutory requirements, the Company’s

internal rules and voluntary obligations, in 2007 we also

initiated the establishment of a compliance organization

and appointed a Chief Compliance Officer. His task is to

implement a Compliance Office, to integrate appropriate

preventive measures into the existing management

system, and to manage and control these measures to

ensure compliance. Furthermore, the Chief Compliance

Officer advises the Board of Management on all

compliance issues.

RISK MANAGEMENT

We pay particular attention to managing potential risks to

the Company. Risks are identified and risk positions

optimized through systematic risk management. The

Volkswagen Group's risk management system is

continually adapted in a dynamic process to reflect the

changing environment. Detailed information on risk

management can be found in the Risk Report chapter on

pages 162 to 169.

The Supervisory Board has established an Audit

Committee, which deals in particular with accounting

issues, compliance and risk management. As recom-

mended by the German Corporate Governance Code, the

Chairman of the Audit Committee, Mr. Holger P. Härter,

Chief Financial Officer and Deputy President of the

Executive Board of Porsche Automobil Holding SE and of

Dr. Ing. h.c. F. Porsche AG, has particular expertise and

experience in applying accounting standards and internal

control systems.


> Corporate Governance Report Remuneration Report Structure and Business Activities Executive Bodies

COMMUNICATION AND TRANSPARENCY

The Volkswagen Group publishes a financial calendar in

its Annual Report, in the interim reports and on its website

at www.volkswagenag.com/ir that also lists all important

dates for our shareholders. At the Annual General

Meeting, shareholders can exercise their voting rights in

person, via an authorized Company proxy, or via a third-

party proxy of their choice. Furthermore, we offer our

shareholders the option of following the entire AGM on

the Internet.

The Company’s ad hoc releases are also published

without delay on our website at www.volkswagenag.com/ir

under the heading “Mandatory Publications”, menu item

“Ad-hoc releases”. The website also provides further

information relating to Volkswagen. All releases and other

information are published in both English and German.

A detailed list of all communications published in 2007

relating to the capital markets is included in the annual

document required by section 10 of the Wertpapier–

prospektgesetz (WpPG – German Securities Prospectus

Act), which can also be accessed on this page under the

heading “Mandatory Publications”.

In fiscal year 2007, one notification regarding

directors' dealings (section 15a WpHG) was received; this

can be viewed on our website at www.volkswagenag.com/ir


“Directors’ Dealings”.

The notifications filed in accordance with sections 21 ff. of

the WpHG in 2007 are also published on our website at

www.volkswagenag.com/ir under the heading “Mandatory

Publications”, menu item “Reporting of voting rights

according to WpHG”.

On May 11, 2007, the Board of Management and the

Supervisory Board of Volkswagen AG separately published

statements on the mandatory public bid by Dr. Ing. h.c. F.

Porsche AG (now Porsche Automobil Holding SE) in

accordance with section 27 of the Wertpapiererwerbs- und

Übernahmegesetz (German Securities Acquisition and

Takeover Act). The detailed documents can also be

accessed on our website at www.volkswagenag.com/ir


“Other legal issues”.

The supervisory body offices held by Board of

Management members and Supervisory Board members

are presented on pages 108 to 111 of this Annual Report.

Since January 2006, Volkswagen AG has had a global

anti-corruption system with independent lawyers as

ombudsmen and an internal Anti-Corruption Officer.

They can also be contacted by persons wishing to provide

information on suspected instances of corruption within

the Group. In 2007, the ombudsmen passed on

information provided by persons who remained

anonymous to Volkswagen AG’s internal Anti-Corruption

Officer in 46 cases. All information is followed up.

MANDATORY PUBLICATIONS OF VOLKSWAGEN AG www.volkswagenag.com/ir

100

REMUNERATION OF THE BOARD OF MANAGEMENT

The remuneration of the members of the Board of

Management conforms to the requirements of the

Aktiengesetz (AktG – German Stock Corporation Act) as

well as to the recommendations and, to a large extent, the

suggestions set out in the German Corporate Governance

Code. The remuneration system was most recently

discussed by the Presidium of the Supervisory Board at its

meeting on July 5, 2007; no changes were recommended

to the Supervisory Board.

The members of the Board of Management receive a

fixed remuneration of a total of €4,810,736 (previous

year: €5,009,987). The fixed remuneration also includes

differing levels of remuneration for the assumption of

appointments at Group companies and non-cash benefits,

which consist in particular of the use of company cars and

the grant of insurance cover. Taxes due on the non-cash

benefits were mainly borne by Volkswagen AG.

The fixed components of the package ensure a basic

level of remuneration enabling the members of the Board

of Management to perform their duties in the interests of

the Company and to fulfill their obligation to act with

proper business prudence without needing to focus on

merely short-term performance targets.

REMUNERATION OF THE MEMBERS OF THE BOARD OF MANAGEMENT

Fixed Variable Stock options

exercised

Total Total

€ 2007 2006

Martin Winterkorn 1,225,996 3,700,000 219,5001 5,145,496 1,926,083

Wolfgang Bernhard 146,417 – 398,150 544,567 3,109,773

Francisco Javier Garcia Sanz 848,926 1,800,000 219,5001 2,868,426 1,724,713

Jochem Heizmann2

838,936 1,750,000 – 2,588,936 –

Horst Neumann 873,472 1,800,000 – 2,673,472 1,735,527

Hans Dieter Pötsch 876,989 1,800,000 – 2,676,989 1,744,852

Members of the Board of Management

who left in the previous year – – – – 3,525,989

4,810,736 10,850,000 837,150 16,497,886 13,766,937

1 Automatic conversion after expiration of the conversion period.

2 From January 11, 2007.

Remuneration Report (Part of the Management Report)

This chapter details the individualized remuneration of the Board of

Management and the Supervisory Board of Volkswagen AG, broken down into

components, as well as individualized pension provision disclosures. In

addition, the main elements of the remuneration system for the Board of

Management and the structure of the stock option program are explained.


>

Corporate Governance Report Remuneration Report Structure and Business Activities Executive Bodies

On the other hand, variable components, dependent

among other criteria on the financial performance of the

Company, serve to balance the interests of the Board of

Management and the other stakeholders.

The additional annual variable amount paid to each

member of the Board of Management contains annually

recurring components tied to the business success of the

Company. It is primarily oriented on the results achieved

and the financial position of the Company.

One-time variable components tied to business

performance are not granted as part of the remuneration

of the Board of Management.

Stock options serve as variable components of

remuneration providing long-term incentives.

Until 2006, stock options were issued to the Board of

Management, Group senior executives and the employees

of Volkswagen AG.

Under this arrangement, all current members of the

Board of Management were entitled to subscribe for

convertible bonds, which continue to have an incentive

effect. The conversion rights are linked to the development

of the price of Volkswagen ordinary shares. As of

December 31, 2007, conversion rights still existed from

tranches 5 to 8. All tranches of the stock option plan

entitled members of the Board of Management to

subscribe for a maximum of 500 non-transferable

convertible bonds at a price of €2.56 per bond, conveying

the right to acquire a maximum of 5,000 ordinary shares.

If a member of the Board of Management was a member of

top management at the date

of grant for each tranche, they could – like all other

members of top management – subscribe for a maximum

of 500 non-transferable convertible bonds at a price of

€2.56 per bond, conveying the right to acquire a maximum

of 5,000 ordinary shares. The precondition for partici-

pation in this stock option plan was a contribution of

between €5,000 and €25,000 in Time Assets, depending

on the number of convertible bonds being acquired. The

stock option plan is essentially structured as follows: the

basis for determining the conversion price (base

conversion price) of a tranche is the average Xetra closing

price of Volkswagen ordinary shares on the five trading

days prior to the respective decision on the issue of

convertible bonds. Conversion is possible for the first time

after a vesting period of 24 months, and then for a period

of five years as from the date of issue of the convertible

bonds. The conversion price is initially set at 110% of the

base conversion price, and then increases by five percent-

tage points each year. The members of the Board of

Management may exercise their conversion rights only

three times a year, within four-week windows beginning

on public reporting dates of Volkswagen AG. The stock

option plan is thus based on demanding, relevant

comparative parameters as set out in the German

Corporate Governance Code. Further details are contained

in the agenda of the Annual General Meeting held on

April 16, 2002, at which the authorization to implement

the stock option plan was granted. The details of the stock

option plan are explained in note 21 Equity.

STOCK OPTION GRANTS

Brought

forward

Jan. 1

Contributed Exercised Returned Held at

Dec. 31

Fair value

of options

2007 in €

Fair value

of options

2006 in €

Martin Winterkorn 2,500 – 500* – 2,000 2,010,600 508,950

Wolfgang Bernhard 1,000 – 500 500 – – 192,000

Francisco Javier Garcia Sanz 2,500 – 500* – 2,000 2,010,600 508,950

Jochem Heizmann – 1,000 – – 1,000 965,950 –

Horst Neumann 1,000 – – – 1,000 952,400 203,700

Hans Dieter Pötsch 2,000 – – – 2,000 2,010,600 415,400

9,000 1,000 1,500 500 8,000 7,950,150 1,929,950

* Automatic conversion after expiration of the conversion period.

102

The stock option plan is designed to provide the members

of the Board of Management – like all other employees –

with an element of their total remuneration package that is

oriented on an increase in the share price. In this way, it

aims to enhance value added and enterprise value.

Furthermore, the stock option plan is also a commonly

employed instrument in recruiting and assuring the long-

term loyalty of members of the Board of Management.

There is no possibility of subsequently modifying the

performance targets or comparative parameters

underlying the stock option plan.

Inappropriate levels of payment arising from the stock

options are not to be expected, because of their link to the

development of the price of Volkswagen ordinary shares

and the limitation of the number of stock options in each

tranche. As recommended by the German Corporate

Governance Code, the Supervisory Board will establish a

cap on such payments in consultation with the members of

the Board of Management in the event of extraordinarily

high unforeseen increases.

POST-EMPLOYMENT BENEFITS

The members of the Board of Management are entitled to a

pension and to a surviving dependents’ pension as well as

the use of company cars in the event of termination of their

service on the Board of Management.

The old-age pension to be granted after leaving the

Company is payable immediately if their membership of

the Board of Management is terminated by the Company,

and in other cases on reaching the age of 63. Any

remuneration from other sources until the age of 63 is

deductible from the benefit entitlement up to a certain

fixed amount.

The old-age pension is calculated as a percentage of the

fixed basic salary, which accounts for most of the fixed

individual remuneration of the Board of Management

shown in the table on page 100. Mr. Winterkorn and

Mr. Garcia Sanz have an old-age pension entitlement of

70%, Mr. Heizmann of 62% and Mr. Neumann and

Mr. Pötsch of 60% of their fixed basic salaries as of the end

of 2007.

Starting at 50%, the individual percentage increases

by 2 percentage points for each year of service up to the

maximum of 70% defined by the Presidium of the

Supervisory Board.

Members of the Board of Management are entitled to a

six-month continuation of their normal remuneration in

the case of illness and to their pension in the case of

incapacity. Their surviving dependents receive a widows’

pension of 66 2/3% and orphans’ benefits of 20% of the

former member of the Board of Management’s pension.

Dr. Bernhard has received a total amount of €5.95

million in conjunction with his departure from the Board

of Management. No further pension claims or surviving

dependents’ pension can be made against Volkswagen AG.

On December 31, 2007 the pension obligations for

members of the Board of Management in accordance with

IAS 19 amounted to €30,334,447 (previous year:

€21,907,510). Current pensions are index-linked in

accordance with the index-linking of the highest

collectively agreed salary insofar as the application of

section 16 of the Gesetz zur Verbesserung der

betrieblichen Altersversorgung (BetrAVG – German

Company Pension Act) does not lead to a larger increase.

Retired members of the Board of Management and

their surviving dependents received €8,688,685 (previous

year: €10,189,421). Obligations for pensions for this

group were recognized in the amount of €107,971,788

(previous year: €118,976,976).


>


REMUNERATION OF THE SUPERVISORY BOARD

The remuneration of the members of the Supervisory

Board of Volkswagen AG amounts to €4,276,167 (previous

year: €2,843,267) and is dependent on the dividend to be

paid for fiscal year 2007. It is composed of fixed com-

ponents (including attendance fees) of €307,192 (previous

year: €306,142) and variable components of €3,968,975

(previous year: €2,537,125), in accordance with the

provisions of the Articles of Association prevailing at the

time.

REMUNERATION OF THE MEMBERS OF THE SUPERVISORY BOARD

Fixed Variable Total Total

€ 2007 2006

Ferdinand K. Piëch 25,000 412,500 437,500 295,000

Jürgen Peters1 19,000 275,000 294,000 199,000

Andreas Blechner (until April 19, 2007)1 4,817 41,632 46,449 103,000

Elke Eller (until September 30, 2007)1 12,750 154,688 167,438 142,800

Michael Frenzel 16,000 206,250 222,250 142,800

Babette Fröhlich (since October 25, 2007)1 2,475 33,802 36,277 –

Hans Michael Gaul 16,000 206,250 222,250 129,067

Jürgen Großmann 12,000 137,500 149,500 67,200

Holger P. Härter 19,000 275,000 294,000 121,333

Walter Hirche2 13,000 137,500 150,500 103,000

Peter Jacobs (since April 19, 2007)1 7,183 95,868 103,051 –

Olaf Kunz1 13,000 137,500 150,500 103,000

Günter Lenz (until July 31, 2007)1 7,500 80,208 87,708 103,000

Peter Mosch1 13,000 137,500 150,500 98,467

Ulrich Neß (until April 19, 2007) 4,725 62,448 67,173 143,800

Roland Oetker 19,000 275,000 294,000 184,600

Bernd Osterloh1 16,000 206,250 222,250 151,000

Heinrich von Pierer 12,000 137,500 149,500 103,000

Wolfgang Ritmeier (since April 19, 2007) 10,275 143,802 154,077 –

Heinrich Söfjer (since August 3, 2007)1 4,467 56,527 60,994 –

Jürgen Stumpf1 12,000 137,500 149,500 103,000

Bernd Wehlauer1 16,000 206,250 222,250 151,000

Wendelin Wiedeking 16,000 206,250 222,250 136,333

Christian Wulff2 16,000 206,250 222,250 151,000

Supervisory Board members who retired in the prior year – – – 111,867

Total 307,192 3,968,975 4,276,167 2,843,267

1 The employee representatives have stated that they will transfer their Supervisory Board remuneration to the Hans Böckler Foundation in accordance with the

guidelines issued by the German Confederation of Trade Unions (DGB).

2 Under section 5(3) of the Niedersächsisches Ministergesetz (Act Governing Ministers of the State of Lower Saxony), the Supervisory Board members appointed by

the State of Lower Saxony are obliged to transfer their Supervisory Board remuneration to the State of Lower Saxony, with the exception of an amount of €5,500

(and the non-transferable portion of the attendance fees amounting to €200 per meeting).

104

OUTLINE OF THE LEGAL STRUCTURE OF THE GROUP

Volkswagen AG is the parent company of the Volkswagen

Group. It develops vehicles and components for the Group,

but also produces and sells vehicles, in particular

Volkswagen brand passenger cars and commercial

vehicles. In its function as parent company, Volkswagen AG

holds interests in AUDI AG, SEAT S.A., Volkswagen

Financial Services AG and numerous other companies in

Germany and abroad. An overview of the significant Group

companies can be found in the Notes to the Consolidated

Financial Statements on pages 258 to 260.

The Volkswagen AG Board of Management is the

ultimate body responsible for managing the Group. The

Supervisory Board appoints, monitors and advises the

Board of Management and is consulted directly on

decisions that are of fundamental significance for the

Company.

Information on the remuneration structure for the

Board of Management and the Supervisory Board can be

found in the Remuneration Report on pages 100 to 103, in

the Notes to the Volkswagen Consolidated Financial

Statements on page 257 and in the Notes to the Annual

Financial Statements of Volkswagen AG on pages 291 to

292.

ORGANIZATIONAL STRUCTURE OF THE GROUP

Volkswagen AG and the Volkswagen Group are managed by

the Volkswagen AG Board of Management in accordance

with the Volkswagen AG Articles of Association and the

rules of procedure for the Volkswagen AG Board of

Management issued by the Supervisory Board. Within the

framework laid down by law, the Group Board of

Management ensures that Group interests are taken into

account in decisions relating to the Group’s brands and

companies. This body consists of Board members and

selected top managers with Group management functions.

Each brand in the Volkswagen Group is managed by a

senior brand manager. The Group targets and require-

ments laid down by the Board of Management of

Volkswagen AG or the Group Board of Management must

be complied with in accordance with the applicable legal

framework. Matters that are of importance to the Group as

a whole are submitted to the Group Board of Management

for approval. The rights and obligations of the statutory

supervisory bodies of the relevant brand companies

remain unaffected.

The companies of the Volkswagen Group are managed

separately by their respective managements. In addition to

the interests of their own companies, each individual

company management takes into account the interests of

the Group and of individual brands in accordance with the

framework laid down by law.

Structure and Business Activities (Part of the Management Report)

The following section describes the legal and organizational structure of the

Volkswagen Group and explains the material changes in 2007 with respect to

equity investments. This is followed by the disclosures relating to takeover

law in accordance with sections 289(4) and 315(4) of the HGB.


>


MA JOR CHANGES IN EQUITY INVESTMENTS

Effective as of January 1, 2007, Autogerma S.p.A was

renamed Volkswagen Group Italia S.p.A.

Volkswagen India Private Limited was established on

February 6, 2007. The initial purpose of the company is to

set up a plant in Pune, India, that will produce Volkswagen

brand vehicles from 2008 onwards. On March 7, 2007,

Volkswagen Group Sales India Private Limited, head–

quartered in Mumbai, India, was also established. It will

sell both locally manufactured and imported Group

vehicles in India.

Svenska Volkswagen Aktiebolag has been operating

under the name of Volkswagen Group Sverige Aktiebolag

since June 20, 2007.

Effective as of January 1, 2008, Volkswagen of America,

Inc. was renamed Volkswagen Group of America, Inc.

Volkswagen Canada, Inc. was renamed Volkswagen Group

Canada, Inc. as of the same date.

In 2007, Volkswagen AG increased its equity interest in

MAN AG to 29.9% of the voting rights and its equity

interest in Scania AB to 37.4% of the voting rights. These

equity interests are designed to safeguard the Group's

strategic interest in the commercial vehicles business. At

the beginning of 2007, Volkswagen AG's Supervisory Board

rejected MAN's offer to acquire Scania and instructed the

Board of Management to work towards an amicable

merger of MAN and Scania in order to leverage the

potential synergies associated with this move.

DISCLOSURES REQUIRED UNDER TAKEOVER LAW

The disclosures required under takeover law as specified

by sections 289(4) and 315(4) of the Handelsgesetzbuch

(HGB – German Commercial Code) are presented in the

following.

Capital structure

On December 31, 2007, the share capital of Volkswagen

AG amounted to €1,015,233,400.32 (previous year:

€1,004,078,968.32); it was composed of 291,337,267

ordinary shares and 105,238,280 preferred shares. Each

share conveys a notional interest of €2.56 in the share

capital.

Shareholder rights and obligations

Shareholders have pecuniary and administrative rights.

The pecuniary rights include in particular the right to

participate in profits (section 58(4) of the Aktiengesetz

(AktG – German Stock Corporation Act)), to participate in

liquidation proceeds (section 271 of the AktG) and

preemptive rights on shares in the event of capital

increases (section 186 of the AktG).

Administrative rights include the right to attend the

Annual General Meeting and the right to speak there, to

ask questions, to propose motions and to exercise voting

rights. Shareholders can enforce these rights in particular

through actions seeking disclosure and actions for

avoidance.

Each ordinary share grants the holder one vote at the

Annual General Meeting. The Annual General Meeting

elects shareholder representatives to the Supervisory

Board and elects the auditors; in particular, it resolves the

appropriation of net profit, formally approves the actions

of the Board of Management and the Supervisory Board,

resolves amendments to the Articles of Association,

capitalization measures, authorizations to purchase

treasury shares and, if required, the conduct of a special

audit; it also resolves premature removal of Supervisory

Board members and the winding-up of the Company.

Preferred shareholders generally have no voting

rights. However, in the exceptional case that preferred

shareholders are granted voting rights by law (for example,

when preferred share dividends were not paid in one year

and not compensated for in full in the following year), each

preferred share also grants the holder one vote at the

Annual General Meeting. Furthermore, preferred shares

entitle the holder to a €0.06 higher dividend than ordinary

shares (further details on this right to preferred dividends

are specified in Article 28(2) of the Articles of Association).

106

The Gesetz über die Überführung der Anteilsrechte an der

Volkswagenwerk Gesellschaft mit beschränkter Haftung in

private Hand (VW-Gesetz – Act on the Privatization of

Shares of Volkswagenwerk Gesellschaft mit beschränkter

Haftung) of July 21, 1960, as amended in 1970, and

Volkswagen AG’s Articles of Association include provisions

in derogation of the Aktiengesetz (AktG – German Stock

Corporation Act), for example on exercising voting rights

by proxy (section 3 of the VW-Gesetz), on majority

requirements (section 4(3) of the VW-Gesetz) and on

restrictions on voting rights (section 2(1) of the VW-Gesetz)

when resolutions are adopted by the Annual General

Meeting. Furthermore, it includes provisions governing

the right of the German federal government and the State

of Lower Saxony to appoint shareholder representatives

(section 4(1) of the VW-Gesetz).

On October 23, 2007, the European Court of Justice

(ECJ) ruled that the Federal Republic of Germany had

breached its obligations under Article 56(1) of the EC

Treaty (restrictions on the movement of capital) by

retaining section 4(1) and section 2(1) in conjunction with

section 4(3) of the VW-Gesetz of July 21, 1960, in the

version applicable to the legal dispute.

Following the ruling by the ECJ, the Federal Republic of

Germany is obliged in accordance with Article 228 of the

EC Treaty to remedy its breach of Community law. The

German federal government has announced that it will

amend the VW-Gesetz in line with the ruling in the near

future. The current status of the legislative process can be

ascertained from the publications by the legislature.

Shareholdings exceeding 10% of voting rights

Shareholdings in Volkswagen AG that exceed 10% of

voting rights are shown in the Notes to the Annual

Financial Statements of Volkswagen AG on pages 284 to

288 and the Notes to the Volkswagen Consolidated

Financial Statements on pages 254 to 256.

Composition of the Supervisory Board

The Supervisory Board consists of 20 members, half of

whom are shareholder representatives. In accordance

with section 4 of the VW-Gesetz in conjunction with Article

12 of the Articles of Association, two of the shareholder

representatives are appointed by the State of Lower

Saxony. The remaining shareholder representatives are

elected by the Annual General Meeting. The other

half of the Supervisory Board consists of employee repre-

sentatives elected by the employees in accordance with the

Mitbestimmungsgesetz (German Codetermination Act).

Seven of these employee representatives are Company

employees; the other three employee representatives on

the Supervisory Board represent the trade unions. The

Chairman of the Supervisory Board, generally a share-

holder representative on the Supervisory Board who is

elected by his Supervisory Board colleagues, has a casting

vote in the Supervisory Board, in accordance with the

Mitbestimmungsgesetz (German Codetermination Act).

Statutory requirements and requirements of the Articles of

Association with regard to the appointment and removal of

Board of Management members and to amendments to the

Articles of Association

The appointment and removal of Board of Management

members are governed by sections 84 and 85 of the AktG,

whereby Board of Management members are appointed by

the Supervisory Board for a maximum of five years. Board

of Management members may be reappointed or have

their term of office extended for a maximum of five years in

each case. In addition, Article 6 of the Articles of

Association states that the number of Board of

Management members is stipulated by the Supervisory

Board and that the Board of Management must consist of

at least three persons.


>


Powers of the Board of Management, in particular

concerning the issue of new shares and the repurchase of

treasury shares

According to German stock corporation law, the Annual

General Meeting can, for a maximum of five years,

authorize the Board of Management to issue new shares. It

can also authorize the Board of Management, for a

maximum of five years, to issue convertible bonds on the

basis of which new shares are to be issued. The Annual

General Meeting also decides the extent to which

shareholders have preemptive rights for the new shares.

The highest amount of authorized share capital or

contingent capital available for these purposes is

determined by Article 4 of the Articles of Association of

Volkswagen AG, as amended.

The acquisition of treasury shares is governed by

section 71 of the AktG. At the most recent Annual General

Meeting in Hamburg on April 19, 2007, the Board of

Management was authorized, in accordance with

section 71(1) no. 8 of the AktG and with the consent of the

Supervisory Board, to acquire ordinary shares and/or non-

voting preferred shares of Volkswagen AG on one or more

occasions, up to a maximum of 10% of the share capital –

i.e. up to a maximum of 39,247,877 shares – via the stock

market or by way of a public purchase offer to all

shareholders. This authorization came into effect on

November 4, 2007, and will apply until October 19, 2008,

insofar as no other resolution is adopted by the Annual

General Meeting prior to this date. Details on the issue of

new shares and the retirement of treasury shares are

shown in the notes on page 222.

Material agreements of the parent company that take effect

in the event of a change of control following a takeover bid

On June 14, 2005, a banking syndicate granted

Volkswagen AG a syndicated credit line of €12.5 billion,

which was reduced to €10.0 billion in 2007. The credit line

runs until June 2012. In the event of a change in control of

Volkswagen AG (as defined in the EU Merger Regulation),

the lenders may individually and independently terminate

their proportion of the credit line with immediate effect,

and if required, demand repayment of amounts lent. Such

a termination entitlement is standard for the industry (see

recommendation of the Loan Market Association).

108

Members of the Board of Management and their Appointments APPOINTMENTS: AS OF DECEMBER 31, 2007

PROF. DR. RER. NAT.

MARTIN WINTERKORN (60)

Chairman (since January 1, 2007),

Research and Development,

Sales

July 1, 2000*

Appointments:

FC Bayern München AG, Munich

Infineon Technologies AG, Munich

Salzgitter AG, Salzgitter

TÜV Süddeutschland Holding AG, Munich

Scania AB, Södertälje, Sweden

DR. RER. POL.

WOLFGANG BERNHARD (47)

February 1, 2005 – January 31, 2007*

FRANCISCO JAVIER

GARCIA SANZ (50)

Procurement

July 1, 2001*

Appointments:


PROF. DR. RER. POL.

JOCHEM HEIZMANN (56)

Production

January 11, 2007*

Appointments:

Lufthansa Technik AG, Hamburg

DR. RER. POL.

HORST NEUMANN (58)

Human Resources and Organization

December 1, 2005*

Appointments:

Wolfsburg AG, Wolfsburg

HANS DIETER PÖTSCH (56)

Finance and Controlling

January 1, 2003*

Appointments:

Allianz Versicherungs-AG, Munich

BASF AG, Ludwigshafen

Bizerba GmbH & Co. KG, Balingen


Executive Bodies (Part of the Notes to the Consolidated Financial Statements and

the Annual Financial Statements of Volkswagen AG)

As part of their duty to manage and supervise the

Group’s business, the members of the Board of

Management hold other offices on the supervisory

boards of consolidated Group companies and other

significant investees.

Membership of statutory supervisory boards in

Germany.

● Group appointments to statutory supervisory

boards.

Comparable appointments in Germany and

abroad.

* The date signifies the beginning or period of

membership of the Board of Management.


>


Members of the Supervisory Board and their Appointments APPOINTMENTS: AS OF DECEMBER 31, 2007

HON.-PROF. DR. TECHN. H.C.

DIPL.-ING. ETH

FERDINAND K. PIËCH (70)

Chairman

April 16, 2002*

Appointments:

MAN AG, Munich (Chairman)

Dr. Ing. h.c. F. Porsche AG, Stuttgart

Porsche Automobil Holding SE, Stuttgart

Porsche Ges.m.b.H, Salzburg

Porsche Holding GmbH, Salzburg

JÜRGEN PETERS (63)

Deputy Chairman;

President International Metalworkers’

Federation – IMF

November 1, 2003*

Appointments:

Salzgitter AG, Salzgitter (Deputy Chairman)

DR. JUR. KLAUS LIESEN (76)

July 2, 1987 – May 3, 2006*

Honorary Chairman of the Supervisory Board

of Volkswagen AG (since May 3, 2006)

ANDREAS BLECHNER (50)

April 16, 2002 – April 19, 2007*

ELKE ELLER (45)

August 20, 2001 – September 30, 2007*

DR. JUR. MICHAEL FRENZEL (60)

Chairman of the Board of

Management of TUI AG

June 7, 2001*

Appointments:

AWD Holding AG, Hanover

AXA Konzern AG, Cologne

Continental AG, Hanover

E.ON Energie AG, Munich

● Hapag-Lloyd AG, Hamburg (Chairman)

● Hapag-Lloyd Fluggesellchaft mbH, Hanover

(Chairman)

● TUI Deutschland GmbH, Hanover

(Chairman)

Norddeutsche Landesbank, Hanover

Preussag North America, Inc.,

Atlanta (Chairman)

TUI China Travel Co. Ltd., Beijing

TUI Travel PLC., Crawley

BABETTE FRÖHLICH (42)

IG Metall,

Member of Executive Committee 02

with responsibility for Codetermination and

Sector Policy

October 25, 2007*

Appointments:

KION Group GmbH, Wiesbaden

KION Holding eins GmbH, Wiesbaden

MTU Aero Engines GmbH, Munich

MTU Aero Engines Holding AG, Munich

DR. JUR. HANS MICHAEL GAUL (65)

June 19, 1997*

Appointments:

Allianz Versicherungs-AG, Munich

DKV Deutsche Krankenversicherung AG,

Cologne

Evonik Industries AG, Essen

HSBC Trinkaus & Burckhardt AG, Düsseldorf

IVG Immobilien AG, Bonn

VNG – Verbundnetz Gas AG, Leipzig


Germany.


boards.


abroad.


membership of the Supervisory Board.

110

DR. ING. JÜRGEN GROSSMANN (55)

Chairman of the Board of Management

of RWE AG;

Partner, Georgsmarienhütte Holding GmbH

May 3, 2006*

Appointments:

BATIG Gesellschaft für Beteiligungen mbH,

Hamburg

British American Tobacco (Germany) GmbH,

Hamburg

British American Tobacco (Industrie) GmbH,

Hamburg

Deutsche Bahn AG, Berlin

MTU Friedrichshafen GmbH,

Friedrichshafen

Surteco AG, Buttenwiesen-Pfaffenhofen

(Chairman)

● RWE Dea AG, Hamburg (Chairman)

● RWE Energy AG, Dortmund (Chairman)

● RWE Power AG, Essen (Chairman)

Ardex GmbH, Witten

Evonik Trading GmbH, Essen

Hanover Acceptances Ltd., London

Messer Group GmbH, Sulzbach

HOLGER P. HÄRTER (51)

Chief Financial Officer,

Deputy President of the Executive Board

of Porsche Automobil Holding SE;

Chief Financial Officer, Deputy Chairman of the

Executive Board of Dr. Ing. h.c. F. Porsche AG

May 3, 2006*

Appointments:

Boerse-Stuttgart, Stuttgart

EUWAX AG, Stuttgart

Porsche Cars Great Britain Ltd., Reading

Porsche Cars North America Inc.,

Wilmington

Porsche Enterprises Inc., Wilmington

Porsche Financial Services, Inc., Wilmington

Porsche Ibérica S.A., Madrid

Porsche Italia S.p.A., Padua

Porsche Japan K.K., Tokyo

WALTER HIRCHE (67)

Minister of Economic Affairs, Labor and

Transport for the Federal State of Lower

Saxony

April 8, 2003*

Appointments:

Deutsche Messe AG, Hanover (Chairman)

PETER JACOBS (50)

Chairman of the Works Council at

the Volkswagen AG Emden plant

April 19, 2007*

Appointments:

Volkswagen Coaching GmbH, Wolfsburg

OLAF KUNZ (48)

IG Metall – Executive Committee 01,

Head of the Office of Legal Counsel

April 16, 2002*

Appointments:

Bosch Sicherheitssysteme GmbH, Stuttgart

GÜNTER LENZ (48)

July 1, 1997 – July 31, 2007*

PETER MOSCH (36)

Chairman of the General Works

Council of AUDI AG

January 18, 2006*

ULRICH NEß (64)

July 1, 2004 – April 19, 2007*

ROLAND OETKER (58)

Managing Partner of ROI

Verwaltungsgesellschaft mbH;

President of Deutsche Schutzvereinigung für

Wertpapierbesitz e.V.

June 19, 1997*

Appointments:

Deutsche Post AG, Bonn

IKB Deutsche Industriebank AG, Düsseldorf

Dr. August Oetker KG-Gruppe, Bielefeld


Germany.


boards.


abroad.




>


BERND OSTERLOH (51)

Chairman of the Group and General

Works Councils of Volkswagen AG

January 1, 2005*

Appointments:

Auto 5000 GmbH, Wolfsburg

Autostadt GmbH, Wolfsburg


Projekt Region Braunschweig GmbH,

Braunschweig

Volkswagen Coaching GmbH, Wolfsburg

PROF. DR. JUR. DR.-ING. E.H.

HEINRICH V. PIERER (67)

June 27, 1996*

Appointments:

Deutsche Bank AG, Frankfurt am Main

Hochtief AG, Essen

Münchener Rückversicherungs-

Gesellschaft AG, Munich

ThyssenKrupp AG, Düsseldorf

WOLFGANG RITMEIER (59)

Chairman of the Board of Management of

Volkswagen Management Association (VMA)

April 19, 2007*

Appointments:

Volkswagen Pension Trust e.V.,

Wolfsburg

HEINRICH SÖFJER (56)

Chairman of the Works Council

Volkswagen Commercial Vehicles

August 3, 2007*

JÜRGEN STUMPF (53)

Chairman of the Works Council

at the Volkswagen AG Kassel plant

January 1, 2005*

BERND WEHLAUER (53)

Deputy Chairman of the General and Group

Works Councils of Volkswagen AG

September 1, 2005*

Appointments:


Volkswagen Pension Trust e.V.,

Wolfsburg

DR. ING. WENDELIN WIEDEKING (55)

Chairman of the Executive Board of

Porsche Automobil Holding SE;

President and Chief Executive Officer of

Dr. Ing. h. c. F. Porsche AG

January 28, 2006*

Appointments:

Novartis AG, Basel

Porsche Cars Great Britain Ltd., Reading

Porsche Cars North America Inc.,

Wilmington

Porsche Enterprises Inc., Wilmington

Porsche Ibérica S.A., Madrid

Porsche Italia S.p.A., Padua

Porsche Japan K.K., Tokyo

CHRISTIAN WULFF (48)

Prime Minister for the Federal

State of Lower Saxony

April 8, 2003*

COMMITTEES OF THE SUPERVISORY BOARD

AS OF DECEMBER 31, 2007

MEMBERS OF THE PRESIDIUM

Hon.-Prof. Dr. techn. h.c. Dipl.-lng. ETH

Ferdinand K. Piëch (Chairman)

Jürgen Peters (Deputy Chairman)

Bernd Osterloh

Bernd Wehlauer

Dr. Ing. Wendelin Wiedeking

Christian Wulff

MEMBERS OF THE MEDIATION COMMITTEE

IN ACCORDANCE WITH SECTION 27(3) OF

THE MITBESTIMMUNGSGESETZ (GERMAN

CODETERMINATION ACT)

Hon.-Prof. Dr. techn. h.c. Dipl.-lng. ETH

Ferdinand K. Piëch (Chairman)

Jürgen Peters (Deputy Chairman)

Bernd Osterloh

Christian Wulff

MEMBERS OF THE AUDIT COMMITTEE

Holger P. Härter (Chairman)

Bernd Wehlauer (Deputy Chairman)

Elke Eller (until September 30, 2007)

Babette Fröhlich (since November 16, 2007)

Dr. jur. Hans Michael Gaul

MEMBERS OF THE SHAREHOLDER

BUSINESS RELATIONSHIPS COMMITTEE

Roland Oetker (Chairman)

Wolfgang Ritmeier (Deputy Chairman, since

April 19, 2007)

Elke Eller (until September 30, 2007)

Dr. jur. Michael Frenzel

Ulrich Neß (until April 19, 2007)

Bernd Wehlauer (since November 16, 2007)


Germany.


boards.


abroad.



Management Report

114 Business Development

122 Shares and Bonds

130 Net Assets, Financial Position and Results of Operations

142 Volkswagen AG (condensed, according to German Commercial Code)

146 Value-Enhancing Factors

162 Risk Report

170 Report on Expected Developments

114

GLOBAL ECONOMIC GROWTH SLOWS

The upturn in the global economy continued in 2007.

However, it slowed in the second half of the year in many

countries owing to the sustained high commodity and

energy prices and the crisis on the US mortgage market. In

total, global economic growth was 3.4%, compared with

3.7% in 2006.

North America

There was a marked decline in US economic growth, from

2.9% in 2006 to 2.2% in 2007. This was due above all to

the crisis on the real estate market. The current account

deficit remained high, although the dollar fell noticeably

in value. Canada’s gross domestic product (GDP) grew by

2.6% (2.8%). The expansion rate of the Mexican economy

declined from 4.8% to 3.2% owing to its heavy

dependence on the USA.

South America/South Africa

The strong growth continued in the two largest South

American countries, Brazil and Argentina. Brazil recorded

5.2% (3.7%) growth in GDP with only a moderate increase

in inflation. The Argentinian economy grew at a rate of

8.4% compared with 8.5% in 2006. The high inflationary

pressure was only slightly reduced. The rate of expansion

in South Africa was 5.0%, marginally lower than the

previous year (5.4%).

Asia-Pacific

Economic growth in the Asian emerging markets

remained unabated in 2007. At 11.4%, China’s growth

was once again up on the previous year (11.1%). By

contrast, in spite of the weak yen and the very low level of

interest and inflation, Japan only recorded GDP growth of

2.1% (2.4%). India continued its strong economic

expansion with a growth rate of 8.8% (9.4%).

Europe

Growth in Western Europe slowed in the course of 2007.

However, growth (2.7%) remained only marginally below

the previous year’s level (2.9%). Average unemployment in

the euro zone fell to 7.4% (8.3%). The euro reached new

highs against the US dollar and the yen. The strong growth

in Central and Eastern Europe continued (6.3%). Only

Hungary recorded a sharp decline in its rate of expansion

with 1.3% (3.9%).

Germany

The growth rate of the German economy declined from

2.9% to 2.5% in 2007. In spite of the strong euro, exports

remained a key growth factor, while private consumption

failed to gain momentum. Average unemployment fell

significantly from 10.8% to 9.0%.

Business Development Deliveries top 6 million vehicles for the first time

Global economic growth eased slightly in 2007. The Volkswagen Group

benefited from the increased global demand for passenger cars, setting a

new sales record by systematically continuing its model initiative.

DIVISIONS COR PORATE GOVERNANC E MANAGEMENT REPORT F I NANC IAL STATEMENTS 2007 ADDITIONAL I N FORMATION 115

> Business Development Shares and Bonds Net Assets, Financial Position and Results of Operations Volkswagen AG (condensed, according to German Commercial Code) Value-Enhancing Factors Risk Report Report on Expected Developments

EXCHANGE RATE MOVEMENTS FROM DECEMBER 2006 TO DECEMBER 2007

Index is based on month-end rates, December 31, 2006 = 100

D J F M A M J J A S O N D

115

110

105

100

95

90

EUR to USD

EUR to JPY

EUR to GBP

EUR to USD

EUR to JPY

EUR to GBP

REGIONAL DIFFERENCES IN DEMAND FOR PASSENGER CARS

Global demand for passenger cars increased by 4.2% to

58.4 million vehicles in 2007. The South American,

Central and Eastern European, and Asia-Pacific markets in

particular recorded above-average growth rates. However,

demand for passenger cars continued to fall in North

America and especially in Japan. Overall, new passenger

car registrations in Western Europe were on a level with

the previous year. In the reporting period, global

automotive production increased by 5.6% to 71.9 million

units, of which 60.4 million were passenger cars (+ 5.5%).

North America

Demand on the North American market for passenger cars

and light commercial vehicles was 2.1% lower in 2007

than in the previous year. Vehicle sales weakened above all

in the US automotive market, which was affected by the

crisis on the real estate market and other factors. Year-on-

year losses were recorded by both the passenger car

segment (– 2.6% to 7.6 million vehicles) and the light

commercial vehicle segment (– 2.3% to 8.6 million units).

In Canada, by contrast, sales increased by 3.0% to

1.7 million vehicles in 2007. On the Mexican market, sales

volumes declined year-on-year for the first time since

2003, with demand falling by 3.5% to 1.1 million units.


The positive development of the South American

automotive markets continued in 2007 for the fourth year

in a row. In Brazil, vehicle sales rose to a new record level.

A total of 2.3 million passenger cars and light commercial

vehicles were newly registered (+ 27.8%), well above the

previous high from 1997 (1.9 million vehicles). Total unit

sales in the truck segment were also up on the previous

year, increasing by 31.9% to 100 thousand units. By

contrast, a total of 787 thousand vehicles were exported,

6.6% fewer than the figure for 2006.Demand for passen-

ger cars in Argentina also reached a new high in 2007,

increasing by 28.9% to 402 thousand units. However, the

South African passenger car market declined by 9.7%

year-on-year with total sales of 435 thousand vehicles.

Asia-Pacific

The number of new passenger car registrations in the Asia-

Pacific region continued to rise in 2007. By far the greatest

increase in demand was recorded by the Chinese auto-

motive market, which grew by 927 thousand units to

5.1 million. This means that China has advanced to

become the world’s second largest passenger car market,

behind the US. In the world’s third largest market – Japan –

there was a substantial fall in the number of newly

registered passenger cars. The sales volume of 4.4 million

passenger cars was 5.2% less than in the previous year.

The strong growth on the Indian automotive market

continued, with passenger car sales increasing by 16.0%

to 1.2 million units.

116

ECONOMIC GROWTH

Percentage change in GDP

4

3

2

1

0

2003 2004 2005 2006 2007

-1

Global economy

USA

Western Europe

Germany

5

Europe/Remaining markets

In 2007, demand for passenger cars in Western Europe

remained flat at 14.9 million vehicles, just 0.2% up on the

previous year’s level. Further rises in fuel prices also led to

an increase in the percentage of diesel vehicles sold, to

53.3% (51.3%). The Italian passenger car market

benefited from the scrapping premium introduced at the

beginning of the year. The other major markets recorded a

mixed performance: while demand increased slightly in

the UK and France, the volume of new car registrations in

Germany and Spain fell year-on-year. By contrast, the

number of new passenger cars registered in Central and

Eastern Europe increased substantially. As was the case

last year, there was strong market growth in Russia

(+ 37.5%) and the Ukraine (+ 46.2%). The passenger car

markets of Central European EU countries developed

dynamically in 2007, notably in the two volume markets of

Poland (+ 22.7%) and Romania (+ 23.3%). Sales of

passenger cars in Turkey continued to weaken (– 4.2%).

Germany

Demand for automobiles in Germany decreased by 7.6%

to 3.5 million vehicles in 2007. While there was an

increase in both commercial vehicle and passenger car

registrations by business customers, there was a marked

fall in demand for passenger cars among private

customers. The main reason for the negative trend in the

entire passenger car market (– 9.2% to 3.1 million

vehicles), besides general consumer reluctance, was the

high number of vehicles purchased in the final months of

2006 prior to the VAT increase as of January 1, 2007. New

registrations of trucks with a gross vehicle weight of up to

six tonnes increased by 12.4% to 222 thousand units.

Thanks to a record level of exports (+ 11.1% to 4.6 million

vehicles), German manufacturers also reached a new

production high of 6.2 million vehicles (+ 6.5%).

THE VOLKSWAGEN GROUP’S NEW MODELS IN 2007

In 2007, the Volkswagen Group again updated and

expanded its model range. This now consists of well over

100 passenger car and commercial vehicle models in

virtually all segments: from small cars to super sports cars

in the passenger car sector, and from urban delivery

vehicles to heavy trucks in the commercial vehicles sector.

We will gradually move into new market segments, insofar

as it is profitable to do so.

As regards the Volkswagen Passenger Cars brand, the

most important new models launched in Europe over the

past fiscal year were the “Cross” versions of the Touran

and the Golf and, above all, the new Golf Variant and the

Tiguan. The latter is set to assume a leading position in the

rapidly expanding compact SUV class with its customer-

oriented equipment features. In 2007, the Audi brand

once again demonstrated its sporty side with the Audi R8, a

sports car with a fascinating design, as well as with the new

Audi A5 series.



VOLKSWAGEN GROUP DELIVERIES BY MONTH

Vehicles in thousands

550

500

450

400

350

JJ FF MM AA MM JJ JJ AA SS OO NN DD

300

2007

2006

600

In addition, Audi launched the impressive new Audi A4

saloon and Audi TT Roadster models. With the new Škoda

Fabia Hatchback, Škoda presented a worthy successor to

its successful volume model. SEAT premiered the SEAT

Altea Freetrack, a vehicle with typical off-road qualities, as

well as launching the sporty SEAT Leon Cupra*. This year

also saw the Lamborghini brand showcase the Gallardo

Superleggera*, which sets new standards in technology

and sportiness. The Bentley brand presented the Bentley

Continental GT Speed Coupé* – the world’s fastest four-

seater, with 610 PS (449 kW). With the Caddy Maxi and its

longer wheelbase, Volkswagen Commercial Vehicles

presented a superior, contemporary solution for many

transport problems in professional and private life. With

the highly successful mobility packages, which have been

further developed a number of times, Volkswagen

Financial Services AG once again demonstrated its

innovative contribution to the Group’s product range over

the past fiscal year.

VEHICLE DELIVERIES WORLDWIDE

In fiscal year 2007, the Volkswagen Group delivered

6,188,959 vehicles to customers worldwide, thereby

exceeding the 6 million sales mark for the very first time.

This corresponds to a year-on-year increase of 7.9%. As

can be seen from the chart shown on this page, the delivery

figures for all twelve months of 2007 outperformed the

same month in the previous year. All Group brands

increased their sales figures ; with the exception of SEAT,

they also set new records. Especially encouraging growth

rates were achieved by the Škoda and Volkswagen

Commercial Vehicles brands, with 14.6% and 10.7%

respectively. As well as this, our Bentley, Lamborghini and

Bugatti brands generated impressive growth rates in the

premium vehicle segments. The table on page 118 gives an

overview of deliveries to customers by market and the

respective passenger car market share in fiscal year 2007.

Sales trends in the individual markets are as follows.

Deliveries in Europe/Remaining markets

In Western Europe, deliveries to Group customers

increased slightly year-on-year. The majority of our

vehicles – 50.3% (54.2%) of the total delivery volume –

were sold here. All Group brands, with the exception of the

Volkswagen Passenger Cars and SEAT brands, exceeded

their sales figures for 2006. Substantial growth rates were

also recorded by the Eos, Phaeton, Audi TT Coupé, Audi A6

allroad quattro, Audi Q7 and Škoda Roomster models.

Demand for the new Golf Variant, Audi A5, Audi TT

Roadster, Škoda Fabia Hatchback and SEAT Altea XL

models also increased. The Volkswagen Group’s share of

the entire Western European passenger car market almost

reached the high level of the previous year with 19.5%

(19.8%), thus making the Group the continued market

leader.

* Consumption and emission data can be found on page 296 of this Report.

118

DELIVERIES TO CUSTOMERS BY MARKET1

Deliveries (units) Share of passenger

car market (%)

2007 2006

Change

(%)

2007 2006

Europe/Remaining markets 3,760,296 3,667,973 + 2.5

Western Europe 3,111,830 3,107,321 + 0.1 19.5 19.8

of which: Germany 1,055,037 1,108,055 – 4.8 32.7 32.6

United Kingdom 403,158 376,614 + 7.0 15.6 14.9

Spain 366,391 362,859 + 1.0 21.4 21.1

Italy 280,459 275,648 + 1.7 10.4 10.8

France 262,563 255,716 + 2.7 12.0 11.8

Central and Eastern Europe 496,430 410,588 + 20.9 11.1 11.8

of which: Czech Republic 86,881 85,019 + 2.2 61.4 64.7

Russia 80,701 47,488 + 69.9 3.2 2.6

Poland 71,876 56,710 + 26.7 22.1 21.5

Remaining markets 152,036 150,064 + 1.3

of which: Turkey 69,387 73,914 – 6.1 11.8 11.3

North America2 530,630 533,377 – 0.5 2.8 2.8

of which: USA 329,234 330,162 – 0.3 2.0 2.0

Mexico 156,186 159,811 – 2.3 14.0 14.0

Canada 45,210 43,404 + 4.2 2.7 2.7

South America/South Africa 845,538 684,000 + 23.6 18.8 18.4

of which: Brazil 581,292 440,492 + 32.0 24.9 24.1

Argentina 114,844 92,905 + 23.6 25.8 26.8

South Africa 101,345 111,051 – 8.7 22.1 22.0

Asia-Pacific 1,052,495 847,942 + 24.1 7.3 6.3

of which: China 910,494 711,378 + 28.0 17.8 17.0

Japan 67,469 69,732 – 3.2 1.5 1.5

Worldwide 6,188,959 5,733,292 + 7.9 9.8 9.5

Volkswagen Passenger Cars 3,662,595 3,396,098 + 7.8

Audi 964,151 905,188 + 6.5

Škoda 630,032 549,667 + 14.6

SEAT 431,024 429,355 + 0.4

Bentley 10,014 9,387 + 6.7

Lamborghini 2,406 2,095 + 14.8

Volkswagen Commercial Vehicles 488,656 441,457 + 10.7

Bugatti 81 45 + 80.0

1 Deliveries and market shares for 2006 have been updated to reflect subsequent statistical trends.

2 Overall markets in the USA, Mexico and Canada include passenger cars and light trucks.



WORLDWIDE DELIVERIES OF THE GROUP’S MOST SUCCESSFUL MODELS IN 2007

Vehicles in thousands

234

742

742

613

523

328

310

298

Passat/Santana

Jetta/Bora

Škoda Octavia

Audi A4

Gol

Golf

Polo

Audi A6

Passat/Santana

Jetta/Bora

Škoda Octavia

Audi A4

Gol

Golf

Polo

Audi A6

Our deliveries to customers in Central and Eastern Europe

increased by 20.9% year-on-year. Particularly strong sales

growth was recorded in Russia, Poland and Romania. The

Golf, Touran, Jetta, Audi Q7 and SEAT Toledo models

achieved the greatest growth rates in these markets.

Demand for Group models in the Remaining markets was

1.3% higher than in the previous year.

Deliveries in Germany

In Germany, 1,055,037 vehicles were delivered to

customers in the past fiscal year: a drop of 4.8% year-on-

year. Besides general consumer reluctance, this decline

was largely due to vehicle purchases pulled forward in the

second half of 2006 prior to the VAT increase effective

January 1, 2007. However, we recorded rising sales

figures for the Eos, Phaeton, Audi Q7, Audi TT Coupé,

Škoda Roomster and Škoda Superb models. The Golf,

Passat, Audi TT, Touran and Multivan/Transporter models

led the German registration statistics in their respective

segments in 2007. The Golf continued to head the list of all

new passenger car registrations in Germany. In total, we

increased our market share to the record level of 32.7%

(32.6%) during the reporting period, thereby further

extending our market leadership.

Deliveries in North America

The Volkswagen Group’s sales figures in the US passenger

car market were down slightly year-on-year (– 0.3%).

However, the Golf, Audi A4 Cabriolet and Audi Q7 models

recorded positive growth. In addition, the sales figures for

the new Eos, Audi TT Coupé and Audi R8 models developed

positively. There was also increased demand for Bentley

brand models. Deliveries to customers in the Canadian

market increased by 4.2%. This was due above all to the

high demand for Golf models. In Mexico, we sold 2.3%

fewer vehicles than in the previous year. However, demand

for the Fox MPV, New Beetle and Jetta models was higher

than in 2006.

Deliveries in South America/South Africa

Deliveries to Group customers in the main South American

passenger car markets continued to increase. In total,

sales in these markets increased by 29.9%. Deliveries

increased by 32.0% year-on-year in Brazil due to

increased demand for the Fox, Polo and Gol models. Sales

of the Saveiro and T2 light commercial vehicles, included

in the total deliveries number, increased by 31.9% in total.

Demand for the heavy trucks (in the 5 to 45 tonnes weight

classes) that are produced in Brazil increased by 30.8%. In

addition, we delivered 6,761 (4,906) buses in this market.

120

In Argentina, the Volkswagen Group’s sales figures

increased by 23.6% year-on-year, with the Fox, Gol, Jetta

and Saveiro models recording the strongest growth rates.

Although the Group’s market share fell to 25.8% (26.8%),

it remained market leader in Argentina. In the area of commercial vehicles, we sold 3,223 (2,917) heavy trucks

and buses here.

Deliveries of Group models in the declining South

African market fell by 8.7% year-on-year. Nonetheless,

demand increased for the Audi TT Coupé, SEAT Ibiza and

Multivan/Transporter models. The Volkswagen Group’s

market share therefore rose to 22.1%, further extending

our market leadership.

Deliveries in the Asia-Pacific region

In the passenger car markets in the Asia-Pacific region,

sales figures for Group models rose by 24.1% year-on-

year. This sustained high level of demand for our vehicles

was attributable above all to the Chinese passenger car

market. The highest growth was recorded by the Polo,

Jetta, Touran and Audi A6 models. In addition, the newly

launched Škoda brand contributed to the success of the

Group in China in 2007. Although the sales incentives by

other manufacturers continued to put considerable

competitive pressure in the Chinese market, the

Volkswagen Group was able to extend its market leadership

in 2007 with a market share of 17.8% (17.0%).

Deliveries to Group customers in Japan fell by 3.2% in

total. Nonetheless, there was buoyant demand for the

Touran and Eos models. Sales figures were mixed in the

remaining markets in the Asia-Pacific region. In Australia,

demand for Group models was especially high.

LEGAL FACTORS INFLUENCING BUSINESS

As with other international companies, Volkswagen

companies are affected by numerous laws in Germany and

abroad. In particular, there are legal requirements

relating to development, production and distribution, but

that also include for example tax, company, commercial

and capital market law, as well as labor, banking and

insurance regulations.

In particular, the VAT increase in Germany introduced

at the beginning of 2007 had a negative effect on domestic

vehicle sales in the fiscal year.

Reports on the investigations by the public prosecutor’s

office in Braunschweig and the legal proceedings in

connection with the incidents (front companies,

embezzlement) in relation to which Volkswagen had filed

criminal charges at the end of June 2005 had no

significant impact on business to date.

The European Commission plans to end design

protection for visible vehicle parts. If this project is actually

implemented, it could adversely affect the Volkswagen

Group’s genuine parts business.

ORDERS RECEIVED BY THE VOLKSWAGEN GROUP

IN WESTERN EUROPE

In Western Europe (including Germany), demand for

Group models in 2007 was far more muted than in the

previous year, as was the case with the market as a whole.

This is primarily due to the weak demand in Germany

owing to the increase in value added tax as of January 1,

2007, and to the general reluctance of private consumers

to purchase. This was also reflected in the level of orders

received by the Group, which decreased by 2.3%

compared with the previous year. Orders rose in the UK

(+ 6.0%), Switzerland (+ 8.6%), Sweden (+ 7.7%) and

Ireland (+ 7.3%).

In Western Europe (excluding Germany), there was a

2.0% rise in the level of orders for Group vehicles, with

Volkswagen Commercial Vehicles (+ 11.8%) and Škoda

(+ 7.1%) recording the highest growth rates.

At December 31, 2007, the Volkswagen Group held

orders for 159,360 vehicles within Germany and for

276,490 units from the rest of Western Europe excluding

Germany. This means that the level of orders was 12.1%

higher than in the previous year.

SALES TO THE DEALER ORGANIZATION

In fiscal year 2007, the Volkswagen Group sold 6,191,618

vehicles to the dealer organization including the joint

ventures in China, representing a year-on-year increase of

8.2%. The proportion of vehicles sold outside Germany

increased from 80.9% in 2006 to 83.4% in 2007. This is

for the most part attributable to the increased demand for

Group models in China, Brazil and Central and Eastern

Europe. In Germany, vehicle sales amounted to 1,030,113,

a decline of 5.7% compared with the previous year.



At 745,488 units sold worldwide, the Golf was once again

our biggest seller, accounting for 12.0% of Group sales.

Substantial growth rates were also recorded by the

following models: Suran (65.6%), Eos (60.9%), Audi A6

allroad quattro (52.8%) and Audi Q7 (25.9%).

In addition, the Golf Variant, Audi TT Coupé, Audi TT

Roadster, Škoda Roomster and SEAT Altea models

generated impressive growth rates, as did Lamborghini,

Bentley and Bugatti brand models. Owing to recent or

planned model changes and updates, there was a decline

in sales of the Golf Plus, New Beetle, New Beetle Cabrio,

Audi A4 saloon, Audi A4 Avant, Škoda Fabia Combi and

SEAT Toledo.

PRODUCTION

In 2007, the Volkswagen Group produced 6,213,332

vehicles including the Chinese joint venture companies;

this is an increase of 9.8% compared with the previous

year. The efficiency of capacity utilization in our plants was

improved above all by the strong demand for our new

models. As a result of the positive volume sales growth in

China, production figures for our Chinese joint ventures

increased by 37.1% year-on-year to 956,002 vehicles. The

production facilities of the Volkswagen Passenger Cars and

Škoda brands also increased their output considerably.

The share of vehicles manufactured in Germany fell

slightly to 33.6% (34.2%). Average production per

working day in our plants worldwide was 25,391 vehicles;

this was 3.5% more units than the previous year.

Production figures do not include the highly successful

Crafter models produced in the Daimler plants in

Dusseldorf and Ludwigsfelde.

INVENTORIES

Inventories held by Group companies and the dealer

organization worldwide at the end of the reporting period

were higher than at the end of 2006. This can be attributed

for the most part to the increased business volume.

Inventories were therefore at the level required to supply

our customers.

NUMBER OF EMPLOYEES

In 2007, the Volkswagen Group, including the Chinese

joint venture companies, employed an average of 328,594

people. A total of 175,206 employees worked in our

companies in Germany, corresponding to 53.3% (52.9%)

of the workforce. The Volkswagen Group had 310,156

active employees as of December 31, 2007. In addition,

9,847 employees were in the passive phase of their early

retirement and 9,302 persons were in apprenticeships.

The total number of people employed by the Volkswagen

Group at the reporting date was 329,305. The 1.4% year-

on-year increase is primarily due to volume-driven

temporary hirings in Brazil, Mexico and China, and to

initial consolidations (principally Autostadt GmbH and

Din Bil Sverige Aktiebolag, Stockholm). A total of 168,737

people were employed in Germany (–0.1%).

SUMMARY OF BUSINESS DEVELOPMENT

In fiscal year 2007, the Volkswagen Group achieved all the

goals it had set itself. It expanded its strong competitive

position and delivered more than six million vehicles to

customers for the first time in its history thanks to demand

for Group models that exceeded the global automobile

market trend. We also achieved our financial goals due to

the positive market acceptance of our attractive model

range and to the sustainable optimization of our cost

structures.

The following table gives an overview of the targets for

key figures in the reporting period and the extent to which

they were achieved:

Measure

Forecast for

2007 Actual 2007

Deliveries > 6 million 6.2 million

Sales revenue > €104.9 billion €108.9 billion

Operating profit > €4.4 billion €6.2 billion

Profit before tax

at least

€5.1 billion €6.5 billion

ROI

> or = cost of

capital 9.5%

Capex/sales revenue < 6% 4.6%

Detailed information on the key financial figures can be

found in the chapter entitled “Net Assets, Financial

Position and Results of Operations”, which begins on page

130.

122

GLOBAL EQUITY MARKETS

2007 was a varied but very positive year for global equity

market investors. All key markets were on a steady growth

path, with the exception of Japan, despite some turbulence

caused primarily by the crisis on the US mortgage market

and climbing energy prices. The key reasons for this were

healthy corporate results, ongoing takeover speculation

and the low level of inflation on the most important

financial markets. The DAX ended 2007 at 8,067 points

after exceeding the 8,000 point mark several times over

the year. This represents a 22.3% year-on-year increase.

On December 31, 2007, the DJ Euro STOXX Automobile

was up 24.9% as against the 2006 year-end level, at

355 points.

DEVELOPMENT OF THE VOLKSWAGEN SHARE PRICE

Volkswagen’s shares hit record prices in 2007, clearly

outperforming the positive trend on the global equity

markets. The shares already significantly outperformed

the market in the first quarter. This development was

primarily driven by the success of the Volkswagen Group's

performance enhancement and restructuring measures,

as well as better than expected results for fiscal year 2006.

The Volkswagen Group’s sales figures in the second

quarter exceeded capital market forecasts in some cases

and investors were very upbeat about our future business

development.

Volkswagen shares bucked the overall market trend in

the third quarter to record further price increases. The

forecast at the time of the publication of its half-yearly

results that Volkswagen would achieve its 2008 earnings

target a year earlier, together with the ongoing favorable

sales situation, were the key reasons for market players’

optimistic mood. Volkswagen AG ordinary shares were

included in the DJ Euro STOXX 50 again effective

October 10, 2007, which gave them an extra boost. The

possible increase in the share of voting rights held by

Dr. Ing. h.c. F. Porsche AG (now Porsche Automobil

Holding SE) after the European Court of Justice’s ruling

on the VW Law on October 23, 2007 also fueled price

speculation.

At the beginning of the fourth quarter, Volkswagen’s

ordinary shares at first continued to fly high, reaching

their record high for the fiscal year of €199.70 on

November 1. Profit taking and increasing fears that growth

would weaken in key economies then led to a drop in the

share price. For the year as a whole, Volkswagen’s ordinary

shares recorded the highest growth of all Western

European automobile manufacturers and again

outperformed the DAX.

Shares and Bonds Volkswagen AG shares outperform the DAX again in 2007

Volkswagen AG shares more than doubled for a time in 2007. The prolonged

favorable sales situation and the systematic continuation of measures to

improve our earnings performance gave this positive development even more

momentum.


>

Business Development Shares and Bonds Net Assets, Financial Position and Results of Operations Volkswagen AG (condensed, according to German Commercial Code) Value-Enhancing Factors Risk Report Report on Expected Developments

SHARE PRICE DEVELOPMENT FROM DECEMBER 2006 TO DECEMBER 2007

Index based on month-end prices: December 31, 2006 = 100

D J F M A M J J A S O N D

140

120

160

200

180

100

Volkswagen ordinary shares

Volkswagen preferred shares

DAX

DJ Euro STOXX Automobile

240

220

Volkswagen AG’s ordinary shares reached €197.90 per

share on October 31, 2007, not only the highest daily

closing price of the fiscal year, but also in the Company’s

entire history. The lowest price of the year was €82.60 on

January 10, 2007. Volkswagen ordinary shares closed the

year at €156.10, up 81.7% year-on-year.

Volkswagen AG preferred shares developed in a similar

way in the reporting period: They reached their highest

closing price of €131.00 on October 31, 2007, hitting their

low of €54.14 on January 10, 2007. Volkswagen AG

preferred shares stood at exactly €100.00 at the end of

year, an increase of 76.8% over the last trading day of

2006.

DIVIDEND YIELD

Based on the dividend proposal for the reporting period,

the dividend yield on Volkswagen AG ordinary shares is

1.2% (1.5%). The dividend yield on preferred shares is

1.9% (2.3%). Details of the current dividend proposal can

be found in the chapter entitled Volkswagen AG

(condensed, according to German Commercial Code) on

page 143 of this Annual Report.

EARNINGS PER SHARE

Basic earnings per ordinary share were €10.43 in 2007. In

accordance with IAS 33, the calculation is based on the

average number of ordinary shares outstanding in the

fiscal year (see also note 9 to the Volkswagen Consolidated

Financial Statements).

CONVERSION OF STOCK OPTIONS

Volkswagen’s extremely encouraging share price

performance in 2007 gave our employees another

opportunity to convert previously subscribed convertible

bonds into ordinary shares. Over the past year, some

59,000 employees exercised their conversion rights under

the convertible bonds subscribed as part of the fourth,

fifth, sixth and seventh tranches of the stock option plan.

This resulted in the creation of 4,357,200 new ordinary

shares, or €11.2 million in subscribed capital. Further

details of our stock option plan can be found in the Notes to

the Volkswagen Consolidated Financial Statements,

starting on page 223.

FURTHER INFORMATION ON VOLKSWAGEN SHARES www.volkswagenag.com/ir

124

SHAREHOLDER STRUCTURE AT DECEMBER 31, 2007

as a percentage of subscribed capital

30.9

25.6

22.5

14.8

6.2

Private shareholders/Other

State of Lower Saxony2

German institutional investors

Porsche Automobil Holding SE1

Foreign institutional investors

0 10 20 30 40 50 60 70 80 90 1000 10 20 30 40 50 60 70 80 90 100

1 In accordance with Annual Report 2006/2007 of Porsche Automobil Holding SE.2 In accordance with notification dated January 28, 2008.

SHAREHOLDER STRUCTURE

The shareholder structure of Volkswagen AG as of

December 31, 2007, is shown in the chart above.

Due to the excellent share price performance of

Volkswagen shares, many bondholders took advantage of

the opportunity to convert their bonds from our stock

option plan in the reporting period. This resulted in the

number of shares increasing significantly. At the end of

2007, the subscribed capital of Volkswagen AG comprised

291,337,267 ordinary shares and 105,238,280 preferred

shares.

Dr. Ing. h.c. F. Porsche AG (now Porsche Automobil

Holding SE) notified us as of March 28, 2007 that its share

of voting rights in Volkswagen AG amounted to 30.93% on

this date and thus exceeded the 30% threshold. This

triggered a requirement to submit a mandatory bid to

acquire the remaining Volkswagen shares.

Following the mandatory bid by Dr. Ing. h.c.F. Porsche AG

on April 30, 2007, the Board of Management and

Supervisory Board of Volkswagen AG separately issued

their statements on this bid in accordance with section 27

of the Wertpapiererwerbs- und Übernahmegesetz

(German Securities Acquisition and Takeover Act) on

May 11, 2007. On the basis of various financial analyses

that they considered, neither executive body could

recommend acceptance of the mandatory bid to the

shareholders of Volkswagen AG, as the fundamental

valuation of Volkswagen shares was higher than the offer

prices for Volkswagen AG's ordinary and preferred shares.

On June 4, 2007, Dr. Ing. h.c.F. Porsche AG announced

that the offer had been accepted for a total of 172,218

ordinary shares and 68,262 preferred shares. This

corresponded to approximately 0.06% of the ordinary

shares and voting rights and 0.06% of the preferred

shares and thus approximately 0.06% of the share capital.

This means that Porsche Automobil Holding SE is the

largest single shareholder.

The State of Lower Saxony held 20.1% of the ordinary

shares on December 31, 2007, corresponding to 14.8% of

subscribed capital.

In the reporting period, the proportion of Volkswagen

shares held by foreign institutional investors increased to

25.6% (previous year: 23.9%). German institutional

investors held 6.2% (previous year: 5.8%).

Notifications of changes in voting rights in accordance

with the Wertpapierhandelsgesetz (German Securities

Trading Act) are published on our website

www.volkswagenag.com/ir under the heading “Mandatory

Publications”, menu item “Reporting of voting rights

according to WpHG”.


>


VOLKSWAGEN SHARE KEY FIGURES

Dividend development 2007 2006 2005 2004 2003

Number of no-par value shares at Dec. 31

Ordinary shares thousands 291,337 286,980 321,930 320,290 320,290

Preferred shares thousands 105,238 105,238 105,238 105,238 105,238

Dividend

per ordinary share € 1.80 1.25 1.15 1.05 1.05

per preferred share € 1.86 1.31 1.21 1.11 1.11

Dividend paid1

per ordinary share € million 524 359 322 292 292

per preferred share € million 196 138 128 117 117

Share price development2 2007 2006 2005 2004 2003

Ordinary shares

Closing € 156.10 85.89 44.61 33.35 44.15

Annual high € 197.90 85.89 54.01 44.65 46.57

Annual low € 82.60 45.10 31.88 30.71 28.66

Preferred shares

Closing € 100.00 56.55 32.50 24.41 28.75

Annual high € 131.00 56.55 40.00 28.97 31.55

Annual low € 54.14 32.85 24.00 21.20 21.05

Beta factor factor 0.88 1.03 1.00 1.05 0.95

Market capitalization at Dec. 31 € billion 56.0 30.6 15.9 11.9 15.3

Equity at Dec. 31 € billion 31.9 26.9 23.6 22.6 23.8

Ratio of market capitalization to equity 1.75 1.14 0.67 0.52 0.65

Key figures per share 2007 2006 2005 2004 2003

Earnings per ordinary share3

basic € 10.43 7.074 2.90 1.79 2.54

diluted € 10.34 7.044 2.90 1.79 2.54

Operating profit5

€ 15.60 5.18 6.60 4.28 4.18

Cash flows from operating activities5 € 39.72 37.32 27.86 29.85 21.81

Equity6

€ 80.38 68.59 55.25 53.19 55.83

Price/earnings ratio7 factor 14.96 12.1 15.4 18.6 17.4

Price/cash flow ratio7 factor 3.9 2.3 1.6 1.1 2.0

Dividend yield

ordinary share % 1.2 1.5 2.6 3.1 2.4

preferred share % 1.9 2.3 3.7 4.5 3.9

Price development (excluding dividends)

ordinary share % + 81.7 + 92.5 + 33.8 – 24.5 + 27.1

preferred share % + 76.8 + 74.0 + 33.1 – 15.1 + 15.0

Turnover on German stock exchanges8 2007 2006 2005 2004 2003

Turnover of Volkswagen ordinary shares € billion 103.1 50.5 30.9 24.3 23.9

million shares 877.3 770.4 735.7 682.0 641.1

Shares per trading day (average) million shares 3.5 3.0 2.9 2.7 2.5

Volkswagen share of total DAX turnover % 5.3 3.9 3.3 3.1 3.2

1 Figures for the years 2003 to 2006 relate to dividends paid in the following

year. For 2007, the figures relate to the proposed dividend.

2 Xetra prices.

3 See note 9 to the Consolidated Financial Statements (Earnings per share) for

the calculation.

4 For 2006 from continuing and discontinued operations.

5 Based on the weighted average number of ordinary and preferred shares

outstanding (basic).

6 Based on the total number of ordinary and preferred shares on December 31.

7 Using closing prices of the ordinary shares.

8 Order book turnover on German exchanges.

126

ANNUAL GENERAL MEETING

Volkswagen AG's 47th Ordinary General Meeting was held

in the Congress Center Hamburg on April 19, 2007. In

total, 61.0% of voting capital was represented. Share-

holders approved an amendment to the Articles of

Association to ensure alignment with the Transparenz-

richtlinie-Umsetzungsgesetz (German Transparency

Directive Implementation Act), among other items. As in

the previous year, shareholders were able to follow the

entire AGM and issue instructions online. Many share-

holders also took advantage of the opportunity to exercise

their voting rights through an authorized proxy of

Volkswagen AG. This service will also be offered to

shareholders for the 48th Annual General Meeting on

April 24, 2008. All shareholders of Volkswagen AG will

receive further information together with their invitation

to the AGM.

VOLKSWAGEN IN SUSTAINABILITY INDICES

The Volkswagen Group's shares are represented in the

London FTSE4Good sustainability index, which evaluates

corporate social and ecological responsibility in particular.

Furthermore, Volkswagen shares are listed in the

Advanced Sustainable Performance Index (ASPI), which

reflects corporate sustainability performance.

Following a reassessment by Swiss asset management

company SAM on behalf of Dow Jones, Volkswagen has

been included again in the Dow Jones Sustainability World

Index since September 24, 2007. Volkswagen is rated

highly in all 20 criteria of the Corporate Sustainability

Assessment, which evaluated such topics as environmental

protection, working conditions and social responsibility.

In particular the Company's activities in the areas of

efficient diesel technology, fuel and drivetrain strategy,

supplier relationships and corporate citizenship were

positively rated.

The latest information on sustainability ratings

can be found on our website at

www.volkswagenag.com/nachhaltigkeit

ANNUAL DOCUMENT IN ACCORDANCE WITH SECTION 10

OF THE WPPG

The publications from fiscal year 2007 (and other years) in

accordance with section 10(1) of the Wertpapierprospekt-

gesetz (WpPG – German Securities Prospectus Act), can be

accessed on our website at www.volkswagenag.com/ir. If it

is not possible to access the document, a document in

printed form can be requested.

VOLKSWAGEN SHARE DATA

Securities identification codes

Market indices

ordinary shares

Market indices

preferred shares Exchanges

Ordinary shares DAX, HDAX, CDAX, CDAX, Prime All Share, Berlin, Bremen, Düsseldorf

ISIN: DE0007664005 Prime All Share, Prime Automobile, Frankfurt, Hamburg, Hanover

WKN: 766400 Prime Automobile, Classic All Share Munich, Stuttgart, Xetra,

Deutsche Börse/Bloomberg: VOW DJ Euro STOXX 50, London, Luxembourg, New York*,

DJ Euro STOXX Automobile, SWX Swiss Exchange

Reuters: VOWG.DE FTST Eurotop 100 Index,

S&P Global 100 Index,

Preferred shares FTSE4Good Global Index,

ISIN: DE0007664039 FTSE4Good Europe Index,

WKN: 766403 DJ Sustainability World Index,

Deutsche Börse/Bloomberg: VOW3 Advanced Sustainable

Reuters: VOWG_p.DE Performance Index

* Traded in the form of "sponsored unlisted American Depositary Receipts" (ADRs).

Five ADRs correspond to one underlying Volkswagen ordinary share.

FURTHER INFORMATION ON SUSTAINABILITY www.volkswagenag.com/nachhaltigkeit


>


INVESTOR RELATIONS ACTIVITIES

In 2007, our Investor Relations team again informed

analysts and investors in all the major global financial

centers about the business development and progress of

the Volkswagen Group and its individual brands in a timely

manner. In addition to the scheduled conference calls

used to explain the quarterly results, which were also

broadcast on the Internet, our Investor Relations

department organized a total of around 500 roadshows,

conferences, presentations and one-on-one discussions

worldwide. Some events were held together with Group

Treasury.

Some of the most important events of 2007 were our

appearances at motor shows in Detroit, Geneva and

Frankfurt, as well as the International Investor Conference

in the Autostadt in Wolfsburg in the spring.

In 2007, our Investor Relations team also further

expanded its activities with private investors: at numerous

events, the team answered questions on issues relating to

the Volkswagen Group and Volkswagen shares.

HIGHLIGHTS IN THE INVESTOR RELATIONS CALENDAR

The high points of the Investor Relations calendar for 2007

were the strategy and product presentation at Lamborghini

in Italy and the analyst and investor conference as part of

the 62nd International Motor Show in Frankfurt.

Numerous investors came to the strategy and product

presentation on July 6, 2007 at the Lamborghini facilities

in the Emilia-Romagna region of Italy. Volkswagen AG’s

Chairman of the Board of Management, Prof. Dr. Martin

Winterkorn, took part as well as the Group CFO, the brand

heads of Audi and Lamborghini, and the heads of develop-

ment and Group design at Volkswagen AG, among others.

Analysts were able to get a picture of the performance of

the traditional Lamborghini business and the entire

Group with a tour of the plant, a design presentation and

numerous test drives of our models. Prof. Dr. Winterkorn

also introduced the Group’s strategic goals and unveiled

two new Volkswagen models in the shape of the Scirocco

and the Golf BlueMotion*. In the unanimous opinion of the

participants, the key to the success of the event was the

opportunity to talk in detail with the members of the

Board of Management and the top management of the

Volkswagen Group.

Another prominent event in the year was the Group

and product presentation for analysts and investors on

September 10, 2007 in the run-up to the International

Motor Show in Frankfurt. Reports by the members of the

Board of Management and the management of Volkswagen

AG on the topics of financial and human resources

strategy, productivity increases, and growth markets as

well as sustainability in the areas of fuel and drivetrain

strategy, met with a positive response from the 180

participants. The highlight of the day was at the end with

the “Night of Driving Ideas” at the Ballsporthalle in

Frankfurt. As part of this grand event, Prof. Dr. Martin

Winterkorn and the brand heads demonstrated the

Group’s diversity and innovative power by presenting eight

world premieres to the approximately 1,500 international

analysts, investors and journalists present.

Investor Relations activities in 2008 will also focus on

strategy and product presentations with the participation

of the members of the Board of Management and the

management of the Volkswagen Group.

All presentations that were given as part of events were

published online at www.volkswagenag.com/ir shortly

afterwards.


128

NEW ISSUES

In 2007, the Volkswagen Group was active in the inter–

national money and capital markets with a large number

of transactions. We used our multi-faceted debt issuance

programs when required and depending on the market

situation. The main elements of the refinancing strategy

are specified by Group Treasury and approved by the

Board of Management on a regular basis.

Our Automotive Division expanded its already

favorable liquidity position over the course of 2007. This

created a high degree of flexibility for the Group in

refinancing the Financial Services Division's growing

capital requirements. In view of this, we also optimized the

ratio between external and internal financing during the

crisis on the capital markets in the second half of the year.

The Financial Services Division issues its convertible

bonds directly from the Financial Services companies’

refinancing programs.

The following table lists the Group’s debt issuance

programs:

Programs

Authorized

volume

€ billion

Amount

utilized on

Dec. 31, 2007

€ billion

Commercial paper 17.1 4.5

Medium-term notes 53.9 22.2

Other capital market programs 8.0 0.6

Asset-backed securities 23.6 13.8

Volkswagen Bank GmbH, Volkswagen Leasing GmbH and

Volkswagen Credit Inc. are the largest issuers in these debt

issuance programs. In 2007, we issued an asset-backed

security (ABS) for Volkswagen Bank of approximately

€1.0 billion as well as two floaters amounting to approxi-

mately €2.25 billion from the Driver Program on the open

market. Volkswagen Leasing received approximately

€2.0 billion on the ABS market from its Volkswagen Car

Lease program. In October, we also successfully placed a

fixed-rate bond of €1.25 billion for the Company. In 2007,

Volkswagen Credit Inc. sold a total of USD 1.2 billion worth

of ABSs, issuing two bonds worth €300 million on the

European capital market in its first appearance as an

issuer. In Mexico, we issued our first bond of over

4.0 billion Mexican pesos for VW Leasing S.A. de CV to

refinance its local financial services portfolios.

The existing network of confirmed credit lines was

further streamlined due to the positive development of

liquidity. In line with this, the Group’s syndicated credit

line was reduced by €2.5 billion to €10.0 billion due to

equally decreased need for commercial paper program

backup. The unused facility was also extended by another

year to June 2012.

The cash holdings, short- and long-term credit lines

and the available general credit facilities give the

Volkswagen Group a very high degree of financial

flexibility, thereby enabling it to cover its refinancing

requirements and ensuring that it remains solvent at all

times.


>


RATINGS

In 2007, rating agencies Moody's Investors Service and

Standard & Poor's carried out their regular update of

credit ratings for Volkswagen AG, Volkswagen Financial

Services AG and Volkswagen Bank GmbH. The previous

short- and long-term credit ratings for Volkswagen AG and

Volkswagen Financial Services AG remained unchanged. It

is particularly encouraging that these agencies recognized

Volkswagen AG’s improved financial data and business

outlook, both of which will have a positive effect on the

ratings going forward. The credit rating given to

Volkswagen Bank GmbH by Moody's Investors Service and

Standard & Poor's is one notch higher than that of

Volkswagen AG and Volkswagen Financial Services AG.

We are using this to our advantage in the refinancing of

our financial services activities. The following table gives

an overview of our current ratings and their development

in past years.

RATINGS

Volkswagen AG Volkswagen Financial Services AG Volkswagen Bank GmbH

2007 2006 2005 2007 2006 2005 2007 2006 2005

Standard & Poor’s

short-term A – 2 A – 2 A – 2 A – 2 A – 2 A – 2 A – 1 A – 1 A – 2

long-term A – A – A – A – A – A – A A A –

Outlook stable stable negative stable stable negative stable stable stable

Moody’s Investors Service

short-term P – 2 P – 2 P – 2 P – 2 P – 2 P – 2 P – 1 P – 1 P – 1

long-term A3 A3 A3 A3 A3 A3 A2 A2 A2

Outlook stable stable stable stable stable stable stable stable stable

OUR INVESTOR RELATIONS TEAM IS AVAILABLE FOR QUERIES AND COMMENTS. WOLFSBURG OFFICE (VOLKSWAGEN AG) Phone + 49 53 61 9– 8 66 22 IR-Hotline Fax + 49 53 61 9– 3 04 11 E-mail [email protected] Internet www.volkswagenag.com/ir LONDON OFFICE (VOLKSWAGEN AG) Phone + 44 20 72 90 7820 Fax + 44 20 76 29 2405 LIAISON OFFICE AUBURN HILLS (VOLKSWAGEN GROUP OF AMERICA, INC.) (Questions relating to American Depositary Receipts) Phone + 1 248 754 5000 Fax + 1 248 754 6405

130

CONSOLIDATED BALANCE SHEET STRUCTURE

The Volkswagen Group's total assets increased by 6.4% to

€145.4 billion in fiscal year 2007. The Automotive and

Financial Services divisions contributed equally to this

development.

The structure of the consolidated balance sheet at

December 31, 2007 can be seen from the chart on page

132. The increase in equity to €31.9 billion lifted the

Volkswagen Group's equity ratio to 22.0% (19.7%).

AUTOMOTIVE DIVISION BALANCE SHEET STRUCTURE

Total assets in the Automotive Division at the end of 2007

amounted to €76.8 billion, an increase of 6.5%.

Noncurrent assets were on the same level as at the end

of 2006. Our continued disciplined investment strategy

reduced property, plant and equipment included in this

item by 4.9%. In contrast, receivables and other financial

assets increased, due in particular to the acquisition of

additional MAN and Scania shares as well as to higher

deferred tax assets. Current assets were up by 14.4%

compared with December 31, 2006, principally attribut-

able to higher securities holdings and a rise in the level of

inventories and receivables generated by volume-related

factors.

The Automotive Division's equity at the balance sheet

date was 19.4% higher than the year before. This was

primarily due to positive earnings growth, higher fair

values of hedging transactions (cash flow hedges) and the

conversion of stock options. In addition, increased capital

market interest rates resulted in lower actuarial losses on

pension provisions recognized directly in equity than in

the previous year. The equity ratio was 32.3% (28.8%).

Current liabilities increased by 4.4%; however, trade

payables and other liabilities included in this item rose as

a result of volume-related factors.

Since the Automotive Division's figures also include the

elimination of intra-Group transactions and the current

financial liabilities of the Automotive Division were lower

than the loans granted to the Financial Services Division,

the reportable figure for the period was negative.

Net Assets, Financial Position and Results of Operations Optimized cost structures deliver a sustainable increase in the Group's earnings power

In fiscal 2007, we not only achieved our 2008 earnings target, we even

significantly exceeded it. We covered our cost of capital again for the first

time since 2001 and generated a positive value contribution.


>


CONSOLIDATED BALANCE SHEET BY DIVISION AS OF DECEMBER 31

Volkswagen Group Automotive1 Financial Services

€ million 2007 2006 2007 2006 2007 2006

Assets

Noncurrent assets 76,841 75,374 37,564 37,817 39,277 37,557

Intangible assets 6,830 7,193 6,736 7,110 94 83

Property, plant and equipment 19,338 20,340 19,151 20,148 187 192

Leasing and rental assets 8,179 7,886 75 61 8,104 7,825

Financial services receivables 27,522 26,450 – 322 27,522 26,128

Noncurrent investments and other financial assets2 14,972 13,505 11,602 10,176 3,370 3,329

Current assets 68,516 61,229 39,190 34,268 29,326 26,961

Inventories 14,031 12,463 13,319 12,377 712 86

Financial services receivables 24,914 23,426 231 179 24,683 23,247

Current receivables and other financial assets 12,844 10,882 10,002 8,571 2,842 2,311

Marketable securities 6,615 5,091 6,503 5,024 112 67

Cash and cash equivalents 10,112 9,367 9,135 8,117 977 1,250

Total assets 145,357 136,603 76,754 72,085 68,603 64,518

Equity and Liabilities

Equity 31,938 26,959 24,802 20,774 7,136 6,185

Equity attributable to shareholders of Volkswagen AG 31,875 26,904 24,739 20,719 7,136 6,185

Minority interests 63 55 63 55 – –

Noncurrent liabilities 57,351 56,159 28,509 28,861 28,842 27,298

Noncurrent financial liabilities 29,315 28,734 3,645 4,539 25,670 24,195

Provisions for pensions 12,603 13,854 12,481 13,719 122 135

Other noncurrent liabilities3 15,433 13,571 12,383 10,603 3,050 2,968

Current liabilities 56,068 53,485 23,443 22,450 32,625 31,035

Current financial liabilities 28,677 30,023 – 1,139 1,759 29,816 28,264

Trade payables 9,099 8,190 8,202 7,288 897 902

Other current liabilities 18,292 15,272 16,380 13,403 1,912 1,869

Total equity and liabilities 145,357 136,603 76,754 72,085 68,603 64,518

1 Including allocation of consolidation adjustments between the Automotive and Financial Services divisions,

primarily intra-Group loans.

2 Including equity-method investments and deferred taxes.

3 Including deferred taxes.

132

CONSOLIDATED BALANCE SHEET STRUCTURE 2007

in percent

Total assets

Total equityand liabilities

Noncurrent assets52.9 (55.2)

Current assets47.1 (44.8)

22.0 (19.7)Equity

38.6 (39.2)Current liabilities

39.4 (41.1)Noncurrent liabilities

0 10 20 30 40 50 60 70 80 90 100

FINANCIAL SERVICES DIVISION BALANCE SHEET STRUCTURE

On December 31, 2007, total assets in the Financial

Services Division amounted to €68.6 billion, up 6.3% as

against the end of 2006. Noncurrent assets and current

assets increased by 4.6% and 8.8% respectively. The

Division's positive business development lifted both rental

assets and financial services receivables. The Financial

Services Division accounted for approximately 47% of the

Volkswagen Group's total assets.

At the balance sheet date, the Financial Services

Division's equity amounted to €7.1 billion, a 15.4%

increase on December 31, 2006 due to the profit for the

period. The equity ratio was 10.4% (9.6%). Both current

and noncurrent financial liabilities rose year-on-year

due to the expansion of business. Deposits at Volkswagen

Bank direct increased by €0.8 billion to €9.6 billion.

The debt/equity ratio remained unchanged at 8:1.

PRINCIPLES AND GOALS OF FINANCIAL MANAGEMENT

The financial management of the Volkswagen Group

comprises the areas of liquidity management, currency,

interest rate and commodity risk management, as well as

credit and country default risk management. Financial

management for all Group companies is carried out

centrally by Group Treasury based on internal directives

and risk parameters.

For more information on the principles and goals of

the financial management, please refer to the Notes to the

2007 Consolidated Financial Statements on pages 240 to

249 of this Annual Report.


>


CASH FLOW STATEMENT BY DIVISION

Volkswagen Group Automotive1 Financial Services

€ million 2007 2006 2007 2006 2007 2006

Profit before tax from continuing operations 6,543 1,793 5,474 774 1,069 1,019

Income taxes paid – 1,172 – 888 – 1,290 – 742 118 – 146

Depreciation and amortization expense 9,238 9,398 7,429 7,762 1,809 1,636

Change in pension provisions 103 248 99 246 4 2

Other noncash income/expense and reclassifications2 – 50 – 517 190 – 384 – 240 – 133

Gross cash flow 14,662 10,034 11,902 7,656 2,760 2,378

Change in working capital 1,000 4,436 1,773 4,089 – 773 347

Change in inventories – 1,856 – 147 – 1,219 – 118 – 637 – 29

Change in receivables – 942 736 – 555 701 – 387 35

Change in liabilities 2,244 700 2,092 431 152 269

Change in other provisions 1,554 3,147 1,455 3,075 99 72

Cash flows from operating activities 15,662 14,470 13,6753

11,7453

1,987 2,725

Cash flows from investing activities – 13,497 – 11,911 – 6,566 – 6,114 – 6,931 – 5,797

of which: acquisition of property, plant and equipment – 4,638 – 3,728 – 4,555 – 3,644 – 83 – 84

capitalized development costs – 1,446 – 1,478 – 1,446 – 1,478 – –

change in leasing and rental assets (excluding

depreciation) – 2,763 – 2,528 – 80 – 50 – 2,683 – 2,478

change in financial services receivables – 3,588 – 3,563 251 – 114 – 3,839 – 3,449

acquisition and disposal of equity investments – 1,261 – 1,139 – 906 – 1,040 – 355 – 99

Net cash flow 2,165 2,559 7,109 5,631 – 4,944 – 3,072

Change in investments in securities – 1,742 – 987 – 1,733 – 998 – 9 11

Cash flows from financing activities 178 – 114 – 4,503 – 3,650 4,681 3,536

Changes in cash and cash equivalents due to exchange

rate changes and to changes in the consolidated Group

structure – 54 – 54 – 53 – 51 – 1 – 3

Net change in cash and cash equivalents 547 1,404 820 932 – 273 472

Cash and cash equivalents at Dec. 31 4 9,914 9,367 8,937 8,117 977 1,250

Securities and loans 9,178 7,097 7,047 5,314 2,131 1,783

Gross liquidity 19,092 16,464 15,984 13,431 3,108 3,033

Total third-party borrowings – 57,992 – 58,757 – 2,506 – 6,298 – 55,486 – 52,459

Net liquidity – 38,900 – 42,293 13,478 7,133 – 52,378 – 49,426


2 Relate mainly to fair value measurement of financial instruments, application of the equity method and reclassification of gains/losses on disposal of noncurrent

assets from continuing operations to investing activities.

3 Before consolidation of intra-Group transactions €13,897 million (€12,253 million).

4 Cash and cash equivalents comprise cash at banks, checks, cash-in-hand and call deposits.

134

FINANCIAL POSITION AND CASH AND CASH EQUIVALENTS

IN THE GROUP

The financial position of the Volkswagen Group continued

to improve in fiscal year 2007. The following sections give

an overview of the Group's liquidity development and

outline the operating factors by division.

The Volkswagen Group's gross cash flow increased by

€4.6 billion year-on-year to €14.7 billion due to the profit

for the period.

Cash flows from working capital increased by

€1.0 billion (€4.4 billion). Cash flows from operating

activities were €15.7 billion (€14.5 billion).

As net cash used in investing activities increased by

13.3% year-on-year to €13.5 billion, net cash flow fell by

€0.4 billion to €2.2 billion.

The Volkswagen Group reported cash and cash equiva-

lents of €9.9 billion (€9.4 billion) on December 31, 2007.

At €19.1 billion, gross liquidity was up €2.6 billion on the

previous year. Net liquidity in the Group improved by

€3.4 billion year-on-year to €–38.9 billion.

FINANCIAL POSITION IN THE AUTOMOTIVE DIVISION

The Automotive Division recorded gross cash flow of

€11.9 billion in 2007, an increase of 55.4% as against the

previous year due to the higher profit for the period.

Following the release of substantial funds tied up in

working capital in 2006, the Division again recorded a

cash inflow. At €1.8 billion, working capital was never-

theless €2.3 billion lower than in the previous year,

when provisions were increased by the effects of the

restructuring measures. Most of these funds were used in

2007. Working capital was also reduced by the increase in

the level of receivables and inventories caused by volume-

related factors. At €13.7 billion, cash flows from operating

activities were 16.4% higher than in 2006.

While investments in property, plant and equipment in

the Automotive Division were up 25.0% on the previous

year to €4.6 billion, the ratio of investments in property,

plant and equipment to sales revenue (capex) still

remained well below the long-term average at 4.6%

(3.8%). This clearly shows that we are continuing to

pursue a policy of disciplined investment despite the

renewal and expansion of our vehicle portfolio. We have

invested mainly in new production sites in Russia and

India as well as for models that we launched in 2007 or

plan to unveil in 2008. Specifically, these are the Tiguan

and the Audi Q5 as well as the successors to the Audi A4,

Gol, Golf and SEAT Ibiza. In contrast to investments,

capitalized development costs fell by 2.2% year-on-year to

€1.4 billion. Taking the acquisition of equity interests into

account, the net cash used in investing activities was, at

€6.6 billion, €0.5 billion higher than in 2006, when the

sale of equity interests had a positive effect. The net cash

flow generated by the Automotive Division nevertheless

rose by 26.2% year-on-year to €7.1 billion.

With regard to financing activities in the Automotive

Division, the further reduction of debt resulted in an

outflow of €4.5 billion (€3.7 billion). Cash and cash

equivalents increased by €0.8 billion, amounting to a total

of €8.9 billion (€8.1 billion) at the end of the reporting

period. The net liquidity of the Automotive Division

improved by a substantial €6.3 billion in fiscal year 2007.

Including securities and loans and net of borrowings, it

amounted to €13.5 billion on December 31, 2007.

FINANCIAL POSITION IN THE FINANCIAL SERVICES DIVISION

The Financial Services Division's gross cash flow rose by

€2.8 billion in 2007, an increase of 16.1% year-on-year.

The Division recorded a further increase of €0.8 billion in

funds tied up in working capital, mainly through short-

term vehicle rentals and receivables. As the increase in

receivables from customer and dealer financing was

higher than in the previous year due to the expansion of

business, cash flows from investing activities rose to

€6.9 billion (€5.8 billion). With regard to financing

activities, the issue of bonds by Volkswagen Bank GmbH

and Volkswagen Leasing GmbH generated a positive cash

flow of €4.7 billion (€3.5 billion). Cash and cash equiva-

lents amounted to €1.0 billion as of December 31, 2007.

Including securities and loans, gross liquidity amounted to

€3.1 billion (€3.0 billion). At €55.5 billion, third-party

borrowings were €3.0 billion higher than as of

December 31, 2006 on account of the expansion of

business. The negative net liquidity – common to the

industry – in the Financial Services Division thus rose by

€3.0 billion to €–52.4 billion.


>


RESULTS OF OPERATIONS OF THE GROUP

The Volkswagen Group generated sales revenue of

€108.9 billion in 2007, 3.8% more than in the previous

year. The positive business development in European

markets outside Germany, especially in Central and

Eastern Europe, and in South America was the main driver

of this success. Accordingly, the largest proportion of sales

revenue was generated outside Germany with 75.3%

(72.8%). The cost of sales increased at a slower pace of

just 1.7% as a result of the optimized cost structures.

This lifted the gross margin from 13.2% to 15.0%. At

€6.2 billion, the Group's operating profit more than tripled

compared with the operating profit after special items in

the previous year. The operating return on sales increased

significantly to 5.6% (1.9%).

CONSOLIDATED PROFIT

The Volkswagen Group generated profit before tax of

€6.5 billion in fiscal year 2007 (€1.8 billion). This means

that the target originally set for 2008 of profit before tax of

at least €5.1 billion was not merely reached a year early,

but in fact significantly exceeded. The return on sales

before tax increased to 6.0% (1.7%). Profit from dis-

continued operations in the previous year contains the net

gain on the disposal and the profit after tax of Europcar for

the period January to May 2006. Although the prior-year

result was boosted by extraordinary tax income, the

Volkswagen Group's profit after tax was around 50%

higher than in 2006 at €4.1 billion (€2.8 billion).

RESULTS OF OPERATIONS OF THE AUTOMOTIVE DIVISION

The sales revenue of the Automotive Division was

€98.8 billion in the reporting period. This represents an

improvement of 2.9% year-on-year that is mainly due to

the increased sales volume. In addition to the higher sales

revenue, the cost savings achieved lifted the gross margin

to 14.3% (12.1%). The gross profit was €14.1 billion

(€11.6 billion). At €8.8 billion, distribution expenses were

1.1% higher than in the previous year. Administrative

expenses amounted to €2.0 billion.

The other operating result grew strongly from

€46 million to €1.9 billion. While restructuring expenses

negatively impacted earnings in 2006, currency hedging

activities had a positive effect in the reporting period.

In total, the operating profit more than quadrupled to

€5.2 billion compared with the operating profit after

special items in the previous year. The ratio of operating

profit to sales revenue was 5.3% (1.2%).

INCOME STATEMENT BY DIVISION

Volkswagen Group Automotive* Financial Services

€ million 2007 2006 2007 2006 2007 2006

Sales revenue 108,897 104,875 98,752 96,004 10,145 8,871

Cost of sales 92,603 91,020 84,674 84,408 7,929 6,612

Gross profit 16,294 13,855 14,078 11,596 2,216 2,259

Distribution expenses 9,274 9,180 8,781 8,681 493 499

Administrative expenses 2,453 2,312 1,970 1,795 483 517

Net other operating income 1,584 – 354 1,867 46 – 283 – 400

Operating profit 6,151 2,009 5,194 1,166 957 843

Financial result 392 – 216 280 – 392 112 176

Profit before tax from continuing operations 6,543 1,793 5,474 774 1,069 1,019

Income tax expense 2,421 – 162 2,254 – 513 167 351

Profit from continuing operations 4,122 1,955 3,220 1,287 902 668

Profit from discontinued operations – 795

Profit after tax 4,122 2,750

* Including allocation of consolidation adjustments between the Automotive and Financial Services divisions.

136

SEGMENT REPORTING – SHARE OF SALES REVENUE BY MARKET 2007

in percent

0 10 20 30 40 50 60 70 80 90 1000 10 20 30 40 50 60 70 80 90 100

Europe (excluding Germany)

North America

Africa

Asia/Oceania

Germany

South America

46.7

24.7

7.7

6.9

1.9

12.1

The financial result improved by €0.7 billion to €0.3 billion,

mainly due to the increase in investment income from

joint ventures included in the consolidated financial

statements using the equity method, as well as higher

interest and securities income.

RESULTS OF OPERATIONS OF THE FINANCIAL SERVICES

DIVISION

Sales revenue in the Financial Services division improved

by 14.4% in the reporting period to €10.1 billion thanks

to rental business and to dealer and customer financing.

At €2.2 billion, gross profit fell marginally short of the

high figure in the previous year as a result of the intense

competitive pressure and higher refinancing costs.

Distribution expenses of €493 million and administrative

expenses of €483 million were lower than in 2006, both

in absolute terms and as a proportion of sales revenue.

This clearly illustrates that we are also pursuing strict

cost discipline in the Financial Services Division. At

€–283 million, the other operating result improved by

€117 million versus the previous year. In spite of tougher

competition and higher refinancing costs as a result of the

crisis in the US subprime market, the Financial Services

Division improved its operating profit by 13.5% year-on-

year to €957 million in fiscal year 2007, again making a

significant contribution to the consolidated profit.

The return on equity before tax fell to 16.1% (16.9%).


>


KEY FINANCIAL FIGURES

% 2007 2006 2005 2004 2003

Volkswagen Group

Gross margin 15.0 13.2 13.0 11.8 12.6

Personnel expense ratio 13.4 16.6 15.7 15.8 16.4

Return on sales before tax (continuing operations) 6.0 1.7 1.7 1.2 1.6

Return on sales after tax 3.8 2.6 1.2 0.8 1.2

Equity ratio 22.0 19.7 17.8 17.8 20.2

Dynamic gearing1 (years) 0.3 0.2 0.2 0.2 0.2

Automotive Division2

Change in unit sales3 + 8.2 + 10.2 + 1.0 + 2.5 + 0.4

Change in sales revenue + 2.9 + 12.0 + 6.8 + 5.0 – 1.4

Operating profit as a percentage of sales revenue 5.3 1.2 2.0 0.9 0.9

Return on investment after tax4 9.5 2.1 2.4 1.3 2.0

Cash flows from operating activities as a percentage of sales revenue 13.8 12.2 9.5 11.1 7.8

Cash flows from investing activities as a percentage of sales revenue 6.6 6.4 6.7 8.8 11.1

Investments in property, plant and equipment as a percentage of

sales revenue 4.6 3.8 5.0 6.8 8.6

Ratio of noncurrent assets to total assets5 25.0 28.0 32.9 35.5 35.7

Ratio of current assets to total assets6 17.4 17.2 18.3 17.1 17.5

Inventory turnover 7.4 7.3 6.8 6.4 6.6

Equity ratio 32.3 28.8 25.3 26.1 30.2

Financial Services Division

Increase in total assets 6.3 0.4 4.7 17.9 12.8

Return on equity before tax7 16.1 16.9 18.2 20.0 23.8

Equity ratio 10.4 9.6 9.7 8.8 7.5

1 Ratio of cash flows from operating activities to current and noncurrent financial liabilities.


3 Including the vehicle-production investments Shanghai-Volkswagen Automotive Company Ltd. and

FAW-Volkswagen Automotive Company Ltd. These companies are accounted for using the equity method.

4 For details, see Value-based management on page 140.

5 Ratio of property, plant and equipment to total assets.

6 Ratio of inventories to total assets.

7 Profit before tax as a percentage of average equity (continuing operations).

138

SUMMARY OF ECONOMIC POSITION

The economic position of the Volkswagen Group continued

its positive trend in fiscal year 2007. The Group's earnings

power and, consequently, its competitiveness improved

sustainably thanks to the optimized cost structures. We

achieved our objective of at least covering our cost of

capital in the reporting period and also achieved the

earnings target originally set for 2008 a year earlier. The

higher net cash flow generated by the Automotive Division

and a further sizeable increase in net liquidity are the

proof of this success.

An overview of the development of the Volkswagen Group

over the past five years can be found in the tables on pages

137 and 139. More information on the economic position

of the Volkswagen Group by brand and business field can

be found in the Divisions chapter starting on page 78.

VALUE ADDED STATEMENT

The value added statement indicates the added value

generated in fiscal year 2007 by a company as its

contribution to the gross domestic product of its home

country, and how it is appropriated. In the reporting

period, the added value generated by the Volkswagen

Group increased by 6.3% year-on-year. Added value per

employee was €83.8 thousand (+ 6.6%).

VALUE ADDED GENERATED BY THE VOLKSWAGEN GROUP

Source of funds in € million 2007 2006

Sales revenue 108,897 104,875

Other income 7,050 6,849

Cost of materials – 72,340 – 66,935

Depreciation and amortization – 9,238 – 9,398

Other upfront expenditures – 9,289 – 11,790

Value added 25,080 23,601

Appropriation of funds in € million 2007 % 2006 %

to shareholders (dividend) 720 2.9 497 2.1

to employees (wages, salaries, benefits) 14,549 58.0 17,400* 73.7

to the state (taxes, duties) 2,950 11.8 440 1.9

to creditors (interest expense) 3,459 13.7 3,011 12.8

to the Company (reserves) 3,402 13.6 2,253 9.5

Value added 25,080 100.0 23,601 100.0

* Excluding special items in the previous year: €14,943 million.


>


FIVE-YEAR REVIEW

2007 2006 2005 2004 2003

Volume Data (thousands)

Vehicle sales (units) 6,192 5,720 5,193 5,143 5,016

Germany 1,030 1,093 1,019 940 916

Abroad 5,162 4,627 4,174 4,203 4,100

Production (units) 6,213 5,660 5,219 5,093 5,021

Germany 2,086 1,935 1,913 1,832 1,740

Abroad 4,127 3,725 3,306 3,261 3,281

Employees (yearly average) 329 329 345 343 335

Germany 175 174 179 179 174

Abroad 154 155 166 164 161

Financial Data in € million

Income Statement

Sales revenue 108,897 104,875 93,996 88,963 84,813

Cost of sales 92,603 91,020 81,733 78,430 74,099

Gross profit 16,294 13,855 12,263 10,533 10,714

Distribution expenses 9,274 9,180 8,628 8,167 7,846

Administrative expenses 2,453 2,312 2,225 2,309 2,274

Net other operating expense/income 1,584 – 354 1,128 1,585 1,011

Operating profit 6,151 2,009 2,538 1,642 1,605

Financial result 392 – 216 – 917 – 554 – 251

Profit before tax from continuing operations 6,543 1,793 1,621 1,088 1,354

Income tax expense 2,421 – 162 571 391 351

Profit from continuing operations 4,122 1,955 1,050 697 1,003

Cost of materials 72,340 66,935 62,620 58,239 53,849

Personnel expenses 14,549 17,400 14,796 14,038 13,878

Balance Sheet at December 31

Noncurrent assets 76,841 75,374 75,235 72,212 67,363

Current assets 68,516 61,229 57,846 55,391 50,783

Total assets 145,357 136,603 133,081 127,603 118,146

Equity 31,938 26,959 23,647 22,681 23,863

of which: minority interests 63 55 47 47 104

Noncurrent liabilities 57,351 56,159 56,125 56,230 46,270

Current liabilities 56,068 53,485 53,309 48,692 48,013

Total equity and liabilities 145,357 136,603 133,081 127,603 118,146

Cash flows from operating activities 15,662 14,470 10,709 11,457 8,371

Cash flows from investing activities 13,497 11,911 10,365 15,078 15,464

Cash flows from financing activities 178 – 114 – 1,794 6,004 11,423

.

140

VALUE CONTRIBUTION AS A CONTROL VARIABLE

The Volkswagen Group's financial target system focuses

systematically on continuously and sustainably increasing

the value of the Company. In order to maximize the use of

resources in the Automotive Division and to measure the

success of this, we have been using value contribution*,

a control variable linked to the cost of capital, for a number

of years.

The concept of value contribution not only allows

overall performance to be measured in the Automotive

Division, but also in the individual business units, projects

and products. In addition, business units and product-

specific investment projects can be managed operationally

and strategically using the value contribution.

COMPONENTS OF VALUE CONTRIBUTION

The value contribution is calculated using operating profit

after tax and the opportunity cost of invested capital.

Operating profit reflects the economic performance of the

Automotive Division. To derive a figure for profit after tax,

we calculated an overall average tax rate of 35% based on

the various international income tax rates of the relevant

companies. The opportunity cost of capital is calculated by

multiplying the invested capital by the cost of capital.

Invested capital is defined as total operating assets

(property, plant and equipment, intangible assets,

inventories and receivables) less non-interest-bearing

liabilities (trade payables and payments on account

received).

DETERMINING THE CURRENT COST OF CAPITAL

The cost of capital is calculated as the weighted average of

the required rates of return on equity and debt. The cost of

equity is determined using the Capital Asset Pricing Model

(CAPM), which uses the yield on long-term risk-free Bunds,

increased by the risk premium attaching to investments in

the equity market. The cost of debt is calculated on the

basis of the average yield for long-term debt.

∗ The value contribution corresponds to the Economic Value Added (EVA®).

EVA® is a registered trademark of Stern Stewart & Co.


>


VALUE CONTRIBUTION AND RETURN ON INVESTMENT

IN THE CURRENT FISCAL YEAR

The operating profit after tax of the Automotive Division

was €3,567 million in the reporting period (€829 million).

The year-on-year improvement is attributable above all to

the sales growth, the further optimization of our cost

structures and the non-recurrence of the restructuring

expenses that had substantially impacted the prior-year

result.

The cost of capital was reduced by €202 million year-

on-year to €2,850 million, due exclusively to the further

reduction in invested capital. This again underlines our

disciplined approach to investments in property, plant and

equipment and our successful working capital manage-

ment. The current average cost of capital remained

unchanged on the whole at 7.6%.

Consequently, we recorded a positive value contri-

bution of €717 million (€–2,223 million) for the first time

since 2001. The return on investment (ROI) was 9.5% in

2007 (previous year: 2.1% after special items, 5.9%

before special items). We have therefore achieved our

objective of at least covering our cost of capital in the

reporting period and exceeded our minimum required

rate of return on invested assets of 9%.

More information on the financial control variables is

available on the Internet at www.volkswagenag.com/ir

COST OF CAPITAL AFTER TAX

AUTOMOTIVE DIVISION

% 2007 2006

Risk-free rate 4.3 3.8

DAX market risk premium 6.0 6.0

Volkswagen-specific risk premium – 0.7 0.2

(Volkswagen beta factor) (0.88) (1.03)

Cost of equity after tax 9.6 10.0

Cost of debt 5.5 4.3

Tax (flat rate 35%) – 1.9 – 1.5

Cost of debt after tax 3.6 2.8

Proportion of equity 66.7 66.7

Proportion of debt 33.3 33.3

Cost of capital after tax 7.6 7.6

VALUE CONTRIBUTION

AUTOMOTIVE DIVISION1

€ million 2007 20062

Operating profit 5,194 1,166

Share of operating profit of Chinese

joint ventures 294 109

Tax expense (flat rate 35%) – 1,921 – 446

Operating profit after tax 3,567 829

Invested capital 37,500 40,159

Return on investment (ROI) in % 9.5 2.1

Cost of capital in % 7.6 7.6

Cost of invested capital 2,850 3,052

Value contribution 717 – 2,223

1 Including proportionate inclusion of vehicle-producing Chinese joint venture

companies and allocation of consolidation adjustments between the

Automotive and Financial Services divisions.

2 Restated.

142

NET INCOME FOR THE YEAR

In fiscal year 2007, Volkswagen AG's sales rose by 4.1%

year-on-year to €55.2 billion. This increase was primarily

due to stronger vehicle sales worldwide. The proportion of

sales revenue generated outside Germany amounted to

61.5% (60.4%). The cost of sales fell by 1.1% compared

with the previous year, which had recorded an increase

due to restructuring measures. At €1.6 billion, gross profit

was up significantly on 2006. Selling, general and adminis-

trative expenses declined by 2.9%. As a consequence, the

ratio of selling, general and administrative expenses to

sales fell. In addition to positive exchange rate effects

relating to deliveries of goods and services, cost allocations

to affiliated companies and to third parties caused the

other operating result to increase by 11.3% to €1.3 billion.

The financial result decreased by 6.2% to €3.8 billion.

Higher income from investments and profit and loss

transfer agreements as well as lower write-downs of

financial assets were offset by lower other investment

income. Gains on the sales of investments had a positive

effect on the financial result in the previous year.

INCOME STATEMENT OF VOLKSWAGEN AG

€ million 2007 2006

Sales 55,218 53,036

Cost of sales 53,652 54,238

Gross profit on sales + 1,566 – 1,202

Selling, general and administrative

expenses 3,863 3,979

Other operating result + 1,309 + 1,175

Financial result* + 3,799 + 4,051

Result from ordinary activities + 2,811 + 45

Taxes on income 1,356 – 900

Net income for the year 1,455 945

Retained profits brought forward 10 11

Appropriations to revenue reserves 720 450

Net retained profits 745 506

* Including write-downs of financial assets.

BALANCE SHEET OF VOLKSWAGEN AG AS OF DECEMBER 31

€ million 2007 2006

Fixed assets 27,072 23,583

Inventories 3,189 2,785

Receivables 12,238 10,663

Cash and bank balances 5,933 8,571

Total assets 48,432 45,602

Equity 11,499 10,335

Long-term debt 8,901 8,348

Medium-term debt 6,892 6,088

Short-term debt 21,140 20,831

Volkswagen AG (condensed, according to German Commercial Code) Stronger vehicle sales worldwide boost sales


>


Volkswagen AG's result from ordinary activities rose to €2.8

billion in 2007 (€45 million). After deducting income

taxes, net income amounted to €1.5 billion, an increase of

54.0% year-on-year.

NET ASSETS AND FINANCIAL POSITION

During the reporting period, Volkswagen AG's net assets

increased by 6.2% to €48.4 billion. Investments in

tangible assets were 17.9% higher than the low figure of

the previous year. Investments were made primarily in

new products and the construction of a third production

line at the Wolfsburg plant. Financial investments

decreased by 12.2% year-on-year. In 2006, the

reorganization of our foreign shareholdings had increased

the carrying amount of these investments. In total, fixed

assets grew by 14.8% compared with December 31, 2006

to €27.1 billion.

Current assets decreased by 3.0% to €21.4 billion.

Increased receivables and inventories were offset by lower

cash due to debt repayments.

Due to the positive price performance of Volkswagen

shares, many employees took advantage of the opportunity

to convert their previously subscribed bonds into ordinary

shares in the reporting period. Together with the higher

net retained profits, this increased equity (including

special tax-allowable reserves) by 11.3% to €11.5 billion.

As a consequence, the equity ratio rose to 23.7% (22.7%).

At the balance sheet date, provisions increased by 13.2%

year-on-year to €21.3 billion. Liabilities fell by 5.0% to

€15.6 billion, of which €11.0 billion (€12.0 billion) was

interest-bearing.

DIVIDEND PROPOSAL

€720 million of the net income for the year was

appropriated to other revenue reserves in accordance with

section 58(2) of the Aktiengesetz (AktG – German Stock

Corporation Act). The Board of Management and

Supervisory Board are proposing to the Annual General

Meeting to pay a dividend of €720 million from net

retained profits, i.e. €1.80 per ordinary share and €1.86

per preferred share.

PROPOSAL ON THE APPROPRIATION

OF NET PROFIT

€ 2007

Dividend distribution on subscribed capital

(€1,015 million) 720,150,281.40

thereof on: ordinary shares 524,407,080.60

preferred shares 195,743,200.80

Balance (carried forward to new account) 24,478,256.21

Net retained profits 744,628,537.61

EMPLOYEE PAY AND BENEFITS AT VOLKSWAGEN AG

€ million 2007 % 2006 %

Direct pay including cash benefits 3,957 57.4 6,126* 72.9

Social security contributions 919 13.3 898 10.7

Compensated absence 728 10.6 757 9.0

Old-age pensions 1,288 18.7 620 7.4

Total expense 6,892 100.0 8,401 100.0

* Including expenses for severance payments and partial retirement arrangements.

144

SALES TO THE DEALER ORGANIZATION

Volkswagen AG sold 2,365,617 vehicles to the dealer

organization in 2007. This was 4.3% more than in the

previous year. The percentage of vehicles sold outside

Germany increased to 69.5% (66.5%).

PRODUCTION

Volkswagen AG's vehicle production plants (Emden,

Hanover and Wolfsburg), including Auto5000 GmbH,

which manufactures vehicles at the Wolfsburg plant,

increased their output by 12.9% to a total of 1,075,997

vehicles. This was primarily due to the increased number

of Golf saloon and Passat saloon models produced. The

launch of the Tiguan in late 2007 was also a major

contributory factor to this increase. Average daily

production at Volkswagen AG increased by 1.6% to 4,473

units.

NUMBER OF EMPLOYEES

At December 31, 2007, a total of 90,468 people were

employed at the sites of Volkswagen AG, excluding staff

employed at subsidiaries. This included 4,434

apprentices. 5,135 employees were in the passive phase of

their early retirement. The workforce was 3.8% smaller

than during the previous year.

The percentage of female employees was 13.2% (13.3%)

of the total headcount. The Company employed 2,303 part-

time workers (2.5%). The percentage of foreign employees

was 6.3% (6.4%). A total of 66.5% (64.9%) of employees

held a vocational qualification in an area relevant to

Volkswagen, while 11.2% (11.1%) were graduates. The

average age of Volkswagen employees in the reporting

period was 42.0 years.

RESEARCH AND DEVELOPMENT

Volkswagen AG's research and development costs

according to the German Commercial Code rose by 9.1%

year-on-year to €2.3 billion. On December 31, 2007,

8,561 people were employed in this area.

PURCHASING VOLUME

The purchasing volume across the six Volkswagen AG sites

in Germany amounted to €19.6 billion in 2007, of which

75.0% (71.9%) was sourced from German suppliers. Of

the total purchasing volume, €16.4 billion was spent on

production materials and €3.2 billion on capital goods and

services.

VOLKSWAGEN AG EXPENDITURE ON ENVIRONMENTAL PROTECTION

€ million 2007 2006 2005 2004 2003

Investments 20 19 27 16 24

Operating costs 177 170 194 202 195


>


OPERATING COSTS FOR ENVIRONMENTAL PROTECTION AT VOLKSWAGEN AG IN 2007

Share of environmental protection areas as percent

34.4

31.6

20.6

6.1

3.2

2.1

2.0

Water pollution control

Air pollution control

Conservation/landscape care

Noise control

Climate protection

Waste management

Soil clean-up

Water pollution control

Air pollution control

Conservation/landscape care

Noise control

Climate protection

Waste management

Soil clean-up

0 10 20 30 40 50 60 70 80 90 1000 10 20 30 40 50 60 70 80 90 100

EXPENDITURE ON ENVIRONMENTAL PROTECTION

Investments for environmental protection consist of both

product-related as well as production-related measures.

The investments in product-related measures relate

mainly to the reduction of exhaust emissions.

Expenditures on water pollution control, waste

management and air pollution control are the main focus

of the investments for environmental protection in

production.

Operating costs relating to environmental protection

are broken down into expenditures for the operation of

environmental protection equipment and expenditures

not relating to such equipment. They relate mainly to

production-related measures. Operating costs relating to

environmental protection increased by 4.1% to €177

million in the reporting period.

BUSINESS DEVELOPMENT RISKS AT VOLKSWAGEN AG

The business development of Volkswagen AG is exposed to

essentially the same risks as the Volkswagen Group. These

risks are explained in the Risk Report on pages 162 to 169

of this Annual Report.

RISKS ARISING FROM FINANCIAL INSTRUMENTS

Risks for Volkswagen AG arising from the use of financial

instruments are the same as those to which the

Volkswagen Group is exposed. An explanation of these

risks can be found on page 168 of this Annual Report.

The Annual Financial Statements of Volkswagen AG (in accordance with

the HGB) can be found on pages 264 to 295 of this Annual Report. They can

also be accessed from the electronic companies register at

www.unternehmensregister.de

146

The key financial indicators for the Volkswagen Group are

explained in detail in the “Net assets, financial position

and results of operations” chapter. However, even

financial performance indicators do not illustrate the

efficiency of a company’s value drivers. The Volkswagen

Group regards its processes in the areas of research and

development, procurement, production, sales and quality

assurance, as well as its dealings with its employees and its

treatment of the environment as non-financial value

drivers. Below, we explain how these value drivers

contribute to the sustainable increase in our enterprise

value.

RESEARCH AND DEVELOPMENT

In 2007, research and development activities mainly

focused on expanding the product range and optimizing

the functionality, quality, safety and environmental

compatibility of Group products. The ideas contributed by

our employees and the expertise of external partners

played a key role here.

Innovative products for the automotive future

In the following paragraphs, we present the most

important models, powertrains and systems launched last

year.

For the Volkswagen Passenger Cars brand, one

highlight of 2007 was the premiere of the new Tiguan. This

compact SUV is the world’s first volume model exclusively

available with charged engines, in other words TDI and

TSI engines. The Tiguan uses an electromechanical

steering system that was developed entirely from scratch

in-house together with the Braunschweig component plant

and that is part of the latest generation of electro-

mechanical steering systems. The Tiguan also offers

customers innovative features such as the new touch-

screen radio/navigation system, a swiveling trailer hitch

and an impressive panoramic sliding sunroof, which made

its debut in the new Golf Variant. In November 2007, the

Tiguan HyMotion research vehicle, featuring an 80 kW

fuel-cell system, was presented at the “Challenge

Bibendum” environmental rally in Shanghai.

Following the success of the Polo BlueMotion*, the

Volkswagen Passenger Cars brand presented a further

seven members of the BlueMotion family last year. This

family stands for fuel efficiency and environmental

compatibility without compromising driving pleasure.

With the addition of the BlueMotion variants of the Golf*,

Golf Plus*, Golf Variant*, Passat*, Passat Variant*, Jetta*

and Touran*, the eco-label became a definitive synonym

for effective environmental protection. The Volkswagen

Commercial Vehicles brand rounded off the BlueMotion

offensive by presenting the Caddy BlueMotion study, which

is close to series production.

In a similar vein to the successful BlueMotion models

from the Volkswagen Passenger Cars brand, Škoda

presented the environmentally-friendly and fuel-efficient

GreenLine model range. The ‘e’ models at Audi and the

“ECOMOTIVE” models at SEAT have the lowest fuel

consumption and emission levels within their respective

model ranges.

Value-Enhancing Factors Innovative products and efficient processes drive continued success

The Volkswagen Group’s skilled and motivated employees develop and

manufacture innovative products that offer exactly the sort of mobility our

customers desire. The focus is on both the efficiency of the working processes

and the responsible use of environmental resources.



>


In 2007, the Audi brand presented the new Audi A4 saloon,

whose innovative transmission system improves axle load

distribution and thus delivers better road-holding. The

vehicle is also equipped with the Audi Drive Select system,

which allows drivers to fine-tune the engine, automatic

gearbox, steering and damper parameters to suit their

needs.

Also last year, the Audi brand successfully launched the

new Audi A5 series, which offers thrilling driving

dynamics and innovative features. The vehicle has a

completely new suspension combining agile handling with

optimum safety. In the Audi R8, the brand presented the

world’s first headlights to use light emitting diode (LED)

technology for all front-light functions – daytime running

lights, indicators, dipped beam and main beam.

Last year’s key innovations relating to the Group’s

powertrain offensive included the further development of

the TSI engine family, which has already won multiple

awards, the first seven-speed direct shift gearbox (DSG),

and the 2.0 l CommonRail TDI engine.

The new 90 kW (122 PS) TSI petrol engine, which

features a single-charge exhaust-driven turbocharger,

combines maximum power with minimal fuel consump-

tion. In contrast to the previous direct shift gearbox, the

clutches of the new seven-speed DSG launched in early

2008 are dry rather than oil-bathed, which improves

efficiency. Thanks to its new CommonRail injection

system, the TDI engine offers a significant improvement in

engine smoothness and acoustic comfort. In addition, it

will be able to meet even the strictest of exhaust thresholds

in future.

Innovative studies point the way to the future

In addition to the Volkswagen Group’s many new models

that have been launched in series production, the

innovative concept cars and studies presented at

international motor shows in 2007 also attracted the

public’s interest.

At the Frankfurt International Motor Show (IAA) in

September 2007, Volkswagen gave the public its first

glimpse of the New Small Family when it unveiled the up!

small car study, a city car with a rear-mounted engine and

high degree of functionality. The prototype was much

praised and in November 2007 won the well-known

“Concept Car Award 2007” in the UK. Just a few weeks

after the IAA, at the end of October 2007, the Space up!

was presented at the Tokyo Motor Show. With five doors,

this minivan in the New Small Family is slightly longer than

the up!. Thanks to the rear-mounted engine, it also offers a

comparatively spacious interior.

Finally, the Space up! Blue, a further addition to the

New Small Family, made its debut at the Los Angeles Auto

Show in November. As well as being driven by a high-

temperature fuel cell, this hybrid vehicle’s battery can be

charged via an electrical outlet. An integral part of the

small car studies is an innovative human-to-machine

interface, which shows how drivers will be able to operate

their vehicles intuitively in the future. This interface

includes features such as voice control for the telephone

and navigation system, plus a touchscreen that is equipped

with a proximity sensor and therefore responds to the

driver’s hand movements as well – after all, only when

driving a vehicle is fun does it really become intuitive.

In Shanghai, the Audi brand presented the Audi Cross

Coupé quattro, a compact SUV study. The vehicle meets the

strictest emission standards and consumes just 5.9 liters

per 100 kilometers. Further developments to the Audi

drive select system, which allows the engine, trans-

mission, steering and ride-damper parameters to be fine-

tuned to suit the driver’s individual requirements, were

also made for this vehicle. The Audi A1 project quattro

celebrated its stage debut at the Tokyo Motor Show. This

latest study marks the Audi brand’s entry into the young

sub-compact segment. The vehicle combines a dynamic

body line and optimum use of space with the highest

quality. As a hybrid with a 30 kW electric motor positioned

on the rear axle and offering a range of up to 100 km in

pure battery mode, it opens up new possibilities.

148

The Škoda brand presented the Fabia Scout design

concept, which is based on the recently unveiled Škoda

Fabia Combi. This off-road style variant’s special features

include generous side molding and typical SUV equipment

features.

The SEAT Tribu, a compact, three-door SUV with a

sporty feel, celebrated its world premiere at the IAA in

Frankfurt. This concept vehicle embodies the evolution of

the brand’s dynamic line and previews SEAT’s future

design philosophy. It features a full-length panoramic roof

that blends with the windscreen. Drivers can also select

the drive mode of their choice from “Urban”, “Sport” and

“Free-run” at the touch of a button, thereby changing the

suspension, transmission and engine management

parameters.

Improved use of synergies

The large number of new vehicles that we will develop for

existing and future markets over the coming years

demands a high degree of design efficiency. The Volks-

wagen Group’s brands will therefore make even greater

use of modular platforms in future, making it possible to

increase synergies both between models in one series and

across all series. For models with transversely mounted

engines, there is a Modular Transverse Toolkit (MQB),

while for models with longitudinally mounted engines,

there is a Modular Longitudinal Toolkit (MLB). The Audi

brand has already developed the new Audi A4 and the Audi

A5 based on the MLB platform. The modular toolkit

approach – the systematic extension of the cross-brand

platform and modular strategy – will further reduce

complexity, time and costs.

Employees file numerous patents

In 2007, 1,479 patent applications were filed on behalf of

the Volkswagen Group, 1,180 of them in Germany and 299

abroad. The majority of these innovations related to

drivetrain systems and electronic aids. Once again, the

large number and the technological quality of the

applications demonstrate our employees’ innovative

strength.

Pooling strengths through strategic alliances

Cooperation arrangements with other vehicle manufac-

turers are a particularly good way of tapping new market

segments cost-effectively. A strategic alliance can keep

development costs low by pooling skills and know-how and

spreads investment costs across several partners. In 2007,

we continued a number of successful joint projects, for

example working with Dr. Ing. h.c.F. Porsche AG on the

development and production of the Volkswagen Touareg,

Audi Q7 and Porsche Cayenne models, and with

Daimler AG on the production of the Volkswagen Crafter

and Mercedes-Benz Sprinter models. In 2008, production

of the Routan, a minivan for the US market, will start in

cooperation with the Chrysler Group.

Volkswagen is also supporting the rapid market launch

of SunFuel, a renewable second-generation biofuel. With

this aim in mind, we are seeking to form cooperation

arrangements with and make direct investments in

companies that are dedicated to producing these fuels.

Back in 2002, Volkswagen and CHOREN Industries

decided to promote and drive forward the development of

new fuels. In 2007, Volkswagen made a financial

investment in CHOREN. The long-term aim of the

cooperation arrangement is to produce SunDiesel in

Germany in accordance with minimum sustainability

standards. The first commercial plant, with an annual

output of 15,000 tonnes, is scheduled to come on stream in

2008. Construction work is scheduled to start on the first

large-scale plant, with an annual output of 200,000 tonnes,

a year later.

In the area of biofuels, Volkswagen also has a long-

standing partnership with IOGEN. The long-term aim of

the cooperation arrangement is to produce cellulose

ethanol in Germany. IOGEN is the world’s leading

producer of cellulose ethanol, a fully renewable second-

generation biofuel.


>


Integrating external R&D know-how

In addition to its own development capacity, the

Volkswagen Group also integrates the know-how of its

suppliers into the development process. This cooperation

ensures that projects can be successfully completed to the

required standard and within reduced development times.

The creative processes, virtual technologies and core

competencies required to meet the challenges posed by

coming megatrends are becoming increasingly important.

Using external know-how for support services, in

downstream processes such as series production

management and in activities that are not customer-

related and generate improvements is particularly

effective. We also draw on the expertise of the subsequent

system suppliers when developing modules and

components. As a general rule, we endeavor to increase

the share of the development process accounted for by our

own work.

Increase in capitalized development costs

In 2007, research and development costs in the

Automotive Division increased by 16.0% year on year. As

capitalized development costs rose at a lower rate, the

capitalization ratio fell to 29.4% (34.9%). The ratio of

research and development costs recognized in the income

statement in accordance with IFRSs to sales revenue in the

Automotive Division was 5.4% (4.8%).

The Research and Development function employed

21,677 people (+1.1%) Group-wide at December 31, 2007,

corresponding to 6.6% of the total headcount. This figure

also includes the staff at the vehicle production invest-

ments Shanghai-Volkswagen Automotive Company Ltd.

and FAW-Volkswagen Automotive Company Ltd. These

companies are accounted for using the equity method.

PROCUREMENT

In 2007, our procurement activities focused once again on

supplier management, which we optimized further while

also improving cooperation with our suppliers. In addi-

tion, we introduced a management system for procured

components so as to better support vehicle start-ups.

Supplier and procured-component management

Increased cooperation with suppliers remains the central

element of our procurement strategy. In 2007, we

continued our successful partnerships with the aim of

optimizing material costs, improving quality and

increasing innovation management. To achieve our aim,

we used the established platforms – the supplier workshop

meetings, the Supplier Quality forum and the Innovation

forum. At these events, Procurement, Technical Develop-

ment and Quality Assurance employees come together with

selected suppliers to identify the potential for improve-

ments in processes, cost and quality. Compliance with the

Volkswagen Group’s environmental and sustainability

standards is a key requirement. Together, the Group and

its suppliers have thus worked out and successfully

implemented approaches aimed at increasing

competitiveness.

RESEARCH AND DEVELOPMENT COSTS IN THE AUTOMOTIVE DIVISION

€ million 2007 2006 2005

Total research and development costs 4,923 4,240 4,075

of which capitalized development costs 1,446 1,478 1,432

Capitalization ratio in % 29.4 34.9 35.1

Amortization of capitalized development costs 1,843 1,826 1,438

Research and development costs recognized in the income statement 5,320 4,588 4,081

150

The obvious benefits of these platforms in terms of

cooperation with suppliers have prompted us to add a

further building block in the form of a management system

for procured components. Particularly during the early

stage of vehicle development before production starts, our

specialists concentrate on those system suppliers whose

components require intensive management due to their

technical complexity. The procured component

management system is an effective tool for maintaining

market success, especially given the rising number of

product start-ups, reduced development times and more

exacting quality requirements.

Parallel to the optimization of operating processes, we

extended the analytical methods used in our procurement

activities. With the help of a cost management tool, we

increased transparency with regard to the cost efficiency of

component unit costs across the Group. Regression

analyses of costs, cost structure analyses and analytical

calculations now assist our buyers in identifying

procurement potential. In addition, the cost of changes to

components or tools can now be calculated more precisely,

ensuring more transparent negotiations with our

suppliers.

Detailed supply-market analyses were carried out in

India, Russia and the ASEAN countries with a view to

tapping these markets as part of the global procurement

strategy. Assisted by numerous supplier workshop meetings,

these activities yielded extensive information on the local

procurement markets. The large number of interested

suppliers who participated in the events pointed to the

enormous potential for cooperation with companies in

these regions. These procurement markets will play an

increasingly important role in future, both for local

production and for exports to Europe and other regions.

Purchasing volume

In 2007, the purchasing volume in the Volkswagen Group

increased by 4.7% year on year to €72.0 billion. The

proportion attributable to German suppliers was 49.7%

(52.1%).


>


VEHICLE PRODUCTION LOCATIONS OF THE VOLKSWAGEN GROUP

Share of total production 2007 in percent

* Of which Germany: 8 (33%).

South America5 locations (13%)

North America1 location (7%)

Europe*23 locations (63%)

South Africa1 location (2%)

Asia3 locations (15%)

PRODUCTION

In 2007, events in production were dominated once again

by a large number of start-ups. At the same time, we

continued to optimize production processes and upgrade

production standards with a view to further improving

efficiency.

Successful start-ups

In 2007, our model offensive again gave rise to numerous

product start-ups. The most important of the year’s new

models under the Volkswagen Passenger Cars brand

included the Golf Variant, the Passat BlueMotion* and the

Tiguan. For the Audi brand, the principal start-ups were

the Audi A5, the Audi S5 and the new Audi A4. The SEAT

brand started to produce the Altea Freetrack and Leon

Cupra* models, while Lamborghini launched production

of the Gallardo Coupé “Superleggera”*. The start of

production of the Caddy Maxi was one of the most

important events of the year for Volkswagen Commercial

Vehicles.

Flexible production locations

On November 28, 2007, the state-of-the-art Kaluga

production plant started operation in Russia, an

important future market. This means that the Volkswagen

Group is now producing at 48 locations worldwide and

manufacturing vehicles at 33 of them.

By enabling us to flexibly adapt production at key plants to

suit demand, our turntable concept provides key advan-

tages throughout the Group in terms of maintaining an

efficient and competitive production system. Together

with our modular strategy, which enables the same

modules and subassemblies to be used in different

vehicles, the turntable concept gives us the necessary

flexibility to react to fluctuations in demand at any time.

Standardized production processes

We are constantly examining the production processes in

the Volkswagen Group to determine the potential for

improvement. Our aim here is to manufacture products

that have been designed with a view to production in short

throughput times and with a firm focus on value creation,

while at the same time systematically ensuring that

resources are used efficiently. Products need to be

optimized and processes, equipment and operating

structures standardized if this aim is to be achieved. This

standardization of all production processes forms the

basis of a Group-wide production system. In addition, we

carry out benchmark analyses in production to identify

best practice approaches within the Group. Any potential

for optimization that is found is acted upon immediately.

We strive to increase productivity by 10% a year on

average. The actual degree of optimization varies

depending on the vehicle model and location.


152

Production milestones in 2007

On February 14, 2007, Volkswagen Sachsen GmbH’s

engine plant in Chemnitz produced the eight millionth

engine. Volkswagen celebrated a special anniversary in

March 2007, when the 25 millionth Golf, the Group’s most

important vehicle, rolled off the production line. Volks-

wagen Motor Polska produced its four millionth engine on

May 31, 2007. Around four and a half years after

production started, Auto5000 GmbH produced the

750,000th Touran in Wolfsburg at the end of June 2007.

November 2007 proved to be a particularly eventful month

in terms of production milestones: the Emden plant

celebrated the 15 millionth Passat and Volkswagen

Sachsen GmbH produced the three millionth vehicle in

total in Zwickau.

SALES AND MARKETING

The Volkswagen Group has a range of exciting brands with

a strong image, and we further optimized their positioning

in 2007.

Intangible values and brand strength

Today, the Volkswagen Passenger Cars brand conveys

quality, reliability and German engineering skills

worldwide. This profile and the associated trust in the

brand mean that, every year, it is the first choice of

millions of customers purchasing a car. This is illustrated

by the rising sales figures in all segments. In future, our

brand management activities will continue to focus mainly

on strengthening the Volkswagen Passenger Cars brand.

With this aim in mind, we sharpened the global brand

image in 2007 under the new “Volkswagen – Das Auto”

slogan. The new brand mission for the long term is to be

the most innovative volume manufacturer with the best

quality in the relevant classes. The key differentiators in

an increasingly competitive environment will be

innovations that are both oriented towards customer

requirements and affordable. The brand image combines

the three core messages “innovative”, “providing

enduring value” and “responsible”. A number of technical

highlights, such as the pioneering TSI, FSI and TDI

engines or the direct shift gearbox (DSG), and our

BlueMotion model range, which demonstrates our keen

awareness of our responsibility towards people and the

environment, already express this brand image.

With its theme and slogan “Vorsprung durch Technik”, the

Audi brand is one of the strongest automotive brands in

the premium segment. In its mission to become the

market leader in this segment over the medium term, Audi

is continuing to rely on its brand image centered around

sportiness, high quality and progressiveness. This is

clearly highlighted by the most recent awards for Audi

models and the “Öko-Trend” Auto-Umwelt-Zertifikat

awarded by the Institute for Environmental Research for

compliance with high environmental standards. The

brand also continues to set standards in terms of the latest

engine technology: starting in mid-2008, the world’s

cleanest diesel technology will go into series production.

“Simply clever” – this is the core theme and slogan

under which Škoda is growing into one of the most

dynamic brands, particularly in Europe. The Škoda brand

embodies a combination of intelligent concepts for the use

of space, providing technically simple yet sophisticated

and practical detailed solutions, plus attractive designs

and extremely good value for money. This brand concept is

gaining recognition: the vehicles bearing the logo with the

winged arrow have received multiple awards for good

design as well as sophisticated and innovative

engineering.

Its core values “sporty”, “lively” and “design-oriented”

have put the SEAT brand back on the road to success. The

Ibiza and Leon models and the vehicles in the Altea model

range are particularly representative of its brand image

and market success. Supported by targeted marketing

activities, the “auto emoción” slogan is becoming

increasingly powerful. The Altea Freetrack, which

combines the sportiness typical of the brand with strong

aesthetics, will in future mark a further milestone in the

positioning of the SEAT brand.

Bugatti, Bentley and Lamborghini round off the wide

range of Volkswagen Group brands. In particular, they

embody exclusivity, elegance and power.

With a range of vehicles from light commercial

vehicles, vans and motor homes through to heavy trucks

and buses, Volkswagen Commercial Vehicles offers its

customers a suitable and high-performance transport

solution for all their needs.


>


Customer satisfaction and customer loyalty

We regularly measure customer satisfaction in a number

of countries with the help of targeted surveys. When

conducting these studies, we concentrate primarily on

products and service. The results are analyzed and

assessed so that appropriate measures can then be

identified. In terms of satisfaction with the product, the

Audi and Škoda brands take pole position, not only within

the Group, but also when ranked against competitors. The

other Group brands also achieve overall satisfaction

scores in line with or above competitors’ results.

Customer satisfaction provides the basis for customer

loyalty. Loyal customers demonstrate their confidence in

our brands, and this confidence is clearly reflected in the

sales figures. Last year, Volkswagen was able not only to

maintain brand loyalty at its already-high level, but also to

increase it further. Škoda also ranks among the leaders in

brand loyalty – as it has done for many years.

Key sales business processes

In 2007, we reorganized the Volkswagen Group’s business

processes in our sales operations. A key element of this

reorganization was to achieve a reduction in distribution

expenses. In this context, the IT systems were

standardized further, and the number of systems used in

Europe was reduced, at both the wholesale and the retail

level. As a result, order and distribution processes will in

future be standardized and the cost of system mainte-

nance and monitoring substantially reduced. In whole-

saling, we have also identified potential synergies at the

business process level, which we will use to reduce the

workload in processes that do not add value. In addition,

we examined the extent to which processes can be

amalgamated with the aim of further streamlining the

support functions in wholesaling and retailing. The

capacity that is freed up can be focused on processes that

do add value and overheads can be reduced. In this way,

we can make the dealership system more profitable and

the sales system more attractive.

Fleet customer business

Volkswagen Group Fleet International, the business unit

set up to serve as the central point of contact for the

international fleet business, established a strong presence

in the market in 2007. In addition to successful customer

acquisitions, activities focused on introducing processing

systems that significantly improve customer care. The

Group’s international fleet network was also

strengthened. The aim of the activities was to satisfy

customers’ increasing calls for time and cost savings as

well as cost transparency.

Sustainability through comprehensive remarketing

Vehicle depreciation is one of the main cost factors for any

vehicle owner, and the resale value is a major factor

influencing the competitiveness of our products. The

Volkswagen Group has therefore developed a remarketing

strategy to help ensure that the residual value of our used

vehicles remains competitive. In order to ensure that our

success extends beyond new car sales, our brands take

into account factors relevant to the sale of the used car as

soon as the product development process begins. In

particular, these include the quality, durability, design and

equipment features of the vehicles. In addition, we

consistently provide our dealership partners with

attractive used cars and offer customer-oriented services

as part of our used car programs.

QUALITY ASSURANCE

The quality of our products and services has a decisive

influence on customer satisfaction with and loyalty

towards our Company. This applies not only to the actual

product quality, but also to the development quality, which

reflects the extent to which the product concept takes into

account customer requirements. Service quality is another

key factor in customer satisfaction, with every single

interaction with the customer being relevant for us.

154

Product quality and warranties

The Volkswagen Group’s aim is to always offer its

customers the best quality in the vehicle class concerned.

With this aim in mind, Quality Assurance launched the

“Product Quality Forum” in 2005. The management

criteria drawn up by the teams of representatives from

Research and Development, Production and Quality

Assurance include key indictors such as the number of

repairs and the financial costs; these and their integration

into an early warning system are now important tools for

continually improving vehicle quality. In 2007, Quality

Assurance also initiated a broad-based vehicle reliability

program, which is being used to further improve the long-

term quality of the vehicles and thus strengthen

customers’ confidence in the products. We are using this

program, which is being implemented in cooperation with

Customer Service and Research and Development, to help

monitor and analyze repairs. For example, it offers

customers a hotline to call in the event that their vehicle

suddenly develops a fault.

Service quality

Whenever a customer requests services from a

Volkswagen dealer, multiple interactions take place

between the parties involved. Service quality therefore

plays a key role in customer satisfaction. First and

foremost, customers want quick, cost-efficient and

faultless repairs. In order to be able to provide suitable

repair and service solutions even faster in future, the

Volkswagen Group last year reorganized functions relating

to warranties, technical product support and vehicle

operating costs in the Service area. These now report to

Quality Assurance and are therefore more closely linked to

the product development process.

EMPLOYEES

At December 31, 2007, the Volkswagen Group employed a

total of 329,305 people worldwide. It is thanks to their

input that the Group set another sales volume and

production record last year. Innovative and highly

motivated employees guarantee the ability to develop and

produce top-quality, technically superior vehicles. In

order to further improve the performance and expertise of

the workforce and thus safeguard the company’s long-

term future, we have launched an extensive staff develop-

ment initiative, the main emphasis of which is on

vocational training processes, improved development

paths for skilled workers and university graduates, and a

substantial increase in technical expertise.

Qualified employees for the Volkswagen Group

Vocational training is a key element of Volkswagen’s

human resources work. The “Automotive Talent” works

agreement that came into force in 2007 governs the entire

process from the selection of apprentices through to their

transfer to permanent employment at Volkswagen AG. The

aim of the agreement is to attract young people who wish

to employ their talents in the automotive industry and who

identify strongly with Volkswagen. Volkswagen provides

training in a total of 28 different vocations and selects

applicants at its six Western German locations using a

standardized computer-supported procedure. The

apprentices in industrial/technical or commercial

vocations are comprehensively assessed in terms of their

quality awareness, customer focus, ability to work on their

own initiative and team skills as well as in their area of

expertise.

At the end of the year, a total of 9,302 young people

worldwide were being trained as new additions to our

outstanding team. The Volkswagen Group is expressly

committed to fostering new talent and thus opening up

future prospects for young people at all its locations.

At an international conference in Mladá Boleslav in

October 2007, the Group’s Board of Management

presented the seventh “Best Apprentice Award” to its most

outstanding apprentices worldwide. 20 apprentices from

ten countries and three continents received a certificate in

recognition of their excellent achievements.

Opportunities for further development are available to

our young specialists through the “Wanderjahre” (years

abroad) program, for example. This enables young

employees to learn and work at a different Group location

for a year after completing their training, thereby

increasing mobility, strengthening international

cooperation and boosting motivation.

In order to meet the company’s constant demand for

new specialist talent, Volkswagen has expanded the

existing StIP integrated degree and traineeship scheme.

Talented young people who have passed the school-leaving

exam are trained in a vocational profession while studying

at a university or university of applied technology close to

their respective site. Following the addition of electrical


>


engineering (in cooperation with the Braunschweig

University of Technology) and information technology (in

cooperation with the University of Magdeburg) in 2007, a

total of 17 technical and commercial subjects are now on

offer. In 2007, Volkswagen recruited 245 new employees

through this program. The scope and nature of the

subjects studied are agreed in close consultation with the

line departments within the company. The training period

is usually four years. The mix of practical experience and

additional university education is a further success factor

in implementing the Company’s objectives, particularly

those relating to productivity and process reliability.

The purpose of Volkswagen’s talent development

activities is to seek out, attract and retain and encourage

highly qualified and motivated individuals. As an attractive

employer, Volkswagen targets and recruits the best

university talent by conducting marketing campaigns at

universities. At the IAA in September 2007, it therefore

launched a new image campaign aimed at these target

groups, which supports the company’s active search for

talent.

The trainee programs offer university graduates and

young professionals the opportunity to learn about the

Company in detail and form networks. The main focus of

the “StartUp Direct” trainee program is on the department

in which, from day one, trainees assume personal

responsibility for dealing with specialist topics. The

“StartUp Cross” trainee program is the right choice for

anyone wishing to experience the diverse world of

Volkswagen. The trainees familiarize themselves with the

Group’s international locations during project placements

in different Volkswagen departments.

Whether at universities or colleges, in Germany or

abroad, Volkswagen is always in search of the best

graduates. The Company’s aim is to attract clever,

ambitious and dedicated people to supplement its existing

outstanding team.

With the help of the Student Talent Bank, Volkswagen

attracts first-class future employees to the Group at an

early stage. This program provides an opportunity for

trainees with exceptional skills to undergo a special

development program.

For those studying for a doctorate, we offer an

extensive program at the AutoUni, which offers

interdisciplinary training programs and seminars. For the

doctorate students, the AutoUni also serves as a platform

for networking across disciplines and specialist areas.

Recruitment in 2007 was driven in particular by the

growth in the automotive business. Although the main

focus overall was on technical subjects and natural

sciences, business/economics and arts subjects were also

represented. Last year, more than 300 talented

individuals were recruited to bolster the workforce. In the

future too, it will continue to be vitally important for us to

attract the best graduates from German and European

universities.

Training – an ongoing process

Due to the technological changes and the reorganization

of working practices within the Company, it is essential

that employees undergo continuing professional

development. The scope and content of the training

measures within the Group are very much determined by

operational requirements and agreed individually in

meetings between management and employees. In this

context, intensive use is made of the extensive range of

internal training programs. For example, some 3,600

events attended by around 38,000 participants in the

different specialist areas take place each year at

Volkswagen AG’s six German locations. Education and

work are closely interlinked at the Group.

Innovative methods are also used in training.

Production employees at the Emden plant, for example,

learn with the help of virtual-reality technology. This

creates three-dimensional images of complex assembly

operations in automotive manufacturing and makes all

participants aware of critical assembly conditions early

on.

In 2007, Bentley Motors Ltd. received the National

Training Award, one of the UK’s highest awards for staff

development, for its talent development programs

“Becoming a Bentley Manager” and “Team Leader

Development”.

The training officers regularly exchange the

experience and extensive knowledge of staff development

available throughout the Volkswagen Group worldwide

with a view to further developing tried-and-tested concepts

from individual plants and locations, standardizing these

concepts by sharing best practice and establishing them

throughout the Group. In November 2007, for example,

45 training officers came together at the international

training managers’ conference at Audi’s Ingolstadt facility

to discuss and assess the strategies and standards for staff

development, skills management and vocational training.

156

In addition, “talent groups” ensure systematic personal

and professional development for key employees at all

levels. At Group level, the AutoUni offers training events in

the form of lectures, conferences and comprehensive

programs, plus study modules in cooperation with well-

known universities.

Management development

In the course of the realignment of Volkswagen’s staff

development activities, the opportunities for promotion to

and career progression within management were

optimized. We have significantly extended the tasks

performed by management employees and the

competencies necessary for those tasks. In future, we will

prepare and support staff taking over management

functions even more intensively.

In this context, the development programs and

selection procedures for new leadership and management

talent were revised, management levels re-defined and

career development paths reorganized accordingly. This

has resulted in more attractive career opportunities for

line and project managers and management employees,

thereby making Volkswagen considerably more attractive

as an employer. By adopting a systematic international

approach to talent management, we are ensuring

transparency of succession planning for top positions

throughout the entire Group and thus optimizing

management development at Volkswagen.

Opinion survey shows employee satisfaction

We use an employee opinion survey to measure employee

satisfaction within the Volkswagen Group. This takes the

form of a structured survey that gathers employees’

opinions on important work-related issues. Employees

complete a questionnaire and, following the evaluation

phase, analyze the results with their superiors. Together,

they then identify measures for improving processes

within their organizational unit.

The opinion survey sets in motion an ongoing process

that involves all employees and brings about targeted

improvements in quality, productivity, information flows,

management style and cooperation. Audi AG has been

making successful use of this tool for some time already.

Due to the positive results at Audi, we have established the

opinion survey as a standard together with international

human resources managers. There are plans to gradually

introduce it throughout the entire Group in 2008.

Part-time scheme for employees near to retirement going

according to plan

In 2007, 2,539 employees moved into the passive phase of

their early retirement. By 2013, this number will

successively increase by a further 9,000 or so employees.

Collective agreement on demographic change

In 2007, a collective agreement on demographic change

was concluded in light of population trends. This

agreement is the first step towards ensuring that

challenging business objectives can still be attained as the

age structure of the workforce changes. In addition to the

guidelines that were agreed upon, it includes the

stipulation that existing approaches already in place at

Volkswagen AG be developed further and new approaches

added where necessary. In a later step, the findings

obtained following the completion of the evaluation phase

are to be incorporated in a further collective agreement on

demographic change.

“Pro Ehrenamt” volunteer initiative

Volkswagen AG has launched an initiative in favor of

volunteering under the motto “Ehrenamt ist Ehrensache”

(It’s an Honor to Volunteer). In future, the Company will

assist charitable organizations in their search for

volunteers, use an image campaign to lend its support to

social responsibility and make the topic a greater part of

its ongoing human resources work.

Anti-discrimination agreement

In 2007, the “Partnerschaftliches Verhalten am Arbeits-

platz” (Partnership-based Conduct in the Workplace)

works agreement came into force at Volkswagen AG

against the background of the general equal opportunities

legislation. The agreement states that any type of

discrimination or harassment, particularly in the form of

sexual and psychological harassment, severely upsets

workplace relations and violates the personal rights of

every individual. Above and beyond their legal right to

complain, we offer employees an advisory service. The

works agreement also specifies the consequences of

misconduct and preventative measures in the area of

training and communication. It marks the continuation of

a long tradition at Volkswagen AG and underlines the

Company’s goal of maintaining an environment of respect

in which there is no discrimination


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HEALTH STATUS OF MANUFACTURING PLANTS IN THE VOLKSWAGEN GROUP

as percent

97.0

97.2

97.2

97.3

97.1

2007

2005

2003

2006

2004

2007

2005

2003

2006

2004

96.4 96.6 96.8 97.0 97.2 97.4

Ideas bear fruit

In 2007, our employees in Europe submitted a total of

122,071 improvement ideas. Of these, 70,152 suggestions

were implemented, thereby improving the quality of our

products and the efficiency of our processes and reducing

costs by a total of €325.2 million. Bonuses worth some

€37.0 million were awarded to staff whose ideas were

implemented as an acknowledgement of their creativity

and active involvement.

The “Volkswagen Way”

The Human Resources function has given much attention

to the preparation and implementation of the “Volkswagen

Way”. The Company and the Central Works Council see the

“Volkswagen Way” as a method of organizing and

continuously improving future work so that vehicles can be

developed and produced for customers to the highest level

of quality and cost efficiency. It is based on four works

agreements that were concluded with the Central Works

Council and aim to increase the efficiency of all working

processes within the Company. As a result of the

“continuous improvement process” in particular,

Volkswagen AG expects the “Volkswagen Way” to bring

substantial increases in productivity that will enable it to

master the tasks facing it in the future.

ENVIRONMENTAL MANAGEMENT IN THE GROUP

The Volkswagen Group pursues an integrated

environmental protection strategy. In other words, in

addition to considering the environmental compatibility of

its products, it also takes into account, assesses and

reduces the environmental impact of its production

processes and logistics. Not least because of this strategy,

all areas of production and all Group processes are subject

to a systematic continuous improvement process.

We are continually extending and modifying our

internal environmental management system. In addition,

we are dedicating an increasing amount of time and effort

to both road traffic as an overall system and conservation.

Events dedicated to environmental protection

Biodiversity is a valuable asset and nature a model for

numerous technical solutions – including in the

automotive industry. In order to highlight these facts,

Volkswagen joined the “Jede Art hängt von anderen ab”

(Every Species Depends on Others) campaign as a partner

to the German federal government and in autumn 2007

sponsored a roadshow bearing the motto “Unterwegs für

Vielfalt” (En Route to Diversity). In addition, the Chairman

of the Board of Management of Volkswagen AG, Prof. Dr.

Martin Winterkorn, is a member of “Naturallianz”

(“Nature Alliance”) a biodiversity initiative founded by the

federal environment minister, Sigmar Gabriel.

Volkswagen is currently developing its own set of species

conservation guidelines. For many years now, numerous

nature and species conservation projects have been under

way not only at Volkswagen AG’s locations in Germany, but

also at the Group’s locations in Brazil, China and Mexico.

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As a global player, the Volkswagen Group is addressing the

challenges of global environmental protection and takes

responsibility for its products and production locations.

Between December 10 and 12, 2007, the Volkswagen

Group’s environmental experts came together at its third

international environmental conference in Wolfsburg to

exchange information face to face. The conference

identified the strategic areas where action needs to be

taken as well as the strategic challenges posed by

environmental protection and then drew up appropriate

recommendations.

Brand commitment to environmental protection

The success of the Volkswagen Group’s integrated

environmental protection policy is the result of the many

and varied contributions made by the individual brands.

This is illustrated by the following examples.

Environmentally-compatible production starts at the

product development stage, as the design and the choice of

materials have a major influence on the subsequent

production and recycling processes. Last year, the

Volkswagen Passenger Cars brand revised the environ-

mental targets of its technical development function; these

are based around the three main themes of climate

protection, conservation of resources and health

protection. The development processes are designed such

that every new vehicle model has a better overall environ-

mental profile than its predecessor. When developing a

new vehicle, we consider its entire lifecycle. In addition,

the environmental management system used by the

technical development function has been audited annually

for compliance with the ISO 14001 standard since 1996.

In 2007, the Volkswagen Passenger Cars brand

developed the new “Umweltprädikat” (Environmental

Rating) brochure, which provides customers with

environmental and product information. In this brochure,

we inform our customers, shareholders and other

interested parties inside and outside the Company about

how we are making products and processes more and

more environmentally friendly and about our successes in

doing so. The Passat and the Golf were the first models to

receive the commendation, which is based primarily on

the results of an environmental impact study certified by

the German inspection organization TÜV Nord. Further

models will follow.

The Audi brand has completed a further retention basin

for rainwater in an effort to conserve valuable drinking

water resources at its Ingolstadt location. There are now a

total of five basins available, with a capacity of 13,000

cubic meters. The collected water is treated and fed into

the process water network. By employing special recycling

processes, the paintshop at our Slovakian location in

Bratislava was able to reduce the use of rinsing agents in

its process baths by 95% and thus cut water consumption

significantly.

In order to reduce energy consumption and therefore

CO2 emissions during production, VW Kraftwerk GmbH

and the Audi brand among others operate their power

plants on the principle of combined heat and power. This

system currently makes the best use of energy resources

from both a technical and ecological perspective. Since

April 2004, we have also been conducting internal energy

audits in an effort to continually optimize our energy

consumption. These audits use standardized criteria to

assess the measures taken by the individual organizational

units, thereby enabling us to identify any potential for

improvement, define examples of best practice and

transfer these examples to other areas.

Logistics is an area particularly relevant to the

environment. All Group brands aim to significantly reduce

the volume they transport by truck. The SEAT brand, for

example, is shifting increasingly from transportation by

road to transportation by rail, primarily in order to cut CO2

emissions. This mainly affects new vehicles transported

from the Martorell plant to the port of Barcelona and metal

and components transported from the Zona Franca plant

to Martorell.

In Brazil, Volkswagen Commercial Vehicles is

participating on a voluntary basis in an afforestation

project on the Atlantic coast in an effort to conserve nature.

For every truck sold with an electronic engine

management system, Volkswagen plants ten trees.

Numerous other Volkswagen Group conservation projects

are creating biotopes and habitats for a number of rare

plant and animal species, including on a 100-hectare piece

of land in front of the Wolfsburg plant.


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In the area of waste management, we are developing a

composting process for solid, biodegradable waste in

cooperation with the University of São Paulo in Brazil. The

aim is to reduce the total volume of waste at our manu-

facturing location in São Carlos by 70 tonnes a year –

equating to around 100% of the organic waste – thereby

helping to conserve local landfill space.

You can find information on additions to the range of

environmentally-friendly vehicles offered by the individual

brands in the “Research and development” section on

page 146.

Fuel and drivetrain strategy

The Volkswagen Group’s fuel and drivetrain strategy is

aimed at pointing the way to sustainable mobility. We wish

to actively contribute to reducing global CO2 emissions,

local emissions such as nitrous oxides or soot particles as

well as dependence on oil.

In addition to the use of primarily regenerative CO2-

neutral energy sources, we include conventional, oil-

derived fuels in our strategic considerations. We

concentrate on further optimizing their properties and

thus reducing emissions.

As part of our drivetrain strategy, our use of TSI

technology – a petrol direct injection with turbo- or

supercharger – builds on the successful TDI engine

concept. TSI engines have consumption levels of up to 20%

less than other fuel injection engines while retaining the

same exceptional driving dynamics. A further example of

highly efficient drive technology is the direct shift gearbox

(DSG), which is considerably more effective than

conventional automatic gearboxes and reduces fuel

consumption by 15%. The Touran-* and Caddy-EcoFuel*

natural-gas models are also capable of running on petrol.

In natural gas mode, they emit up to 25% less CO2. Sulfur

dioxide, soot and other particle emissions are almost

completely eliminated.

Hybrid technology plays a central role in our drivetrain

strategy in addition to petrol and diesel engines. Together

with strategic partners and international universities, we

are working intensively to integrate hybrid drives in future

series products.

With regard to engine development, petrol and diesel

engines are becoming increasingly similar. The intro-

duction of direct injection in petrol engines marked a

milestone in this area. Further developments in

combustion processes also highlight the increasing

similarity between the two technologies. On the diesel

side, for example, work continues on homogeneous mixture

formation as in petrol engines. Meanwhile, attempts are

under way to make the spark plugs on petrol engines

superfluous, at least in certain parts of the engine map,

using a homogeneous compression ignition system. The

result produced by combining the two combustion systems

is referred to at Volkswagen as “CCS” and was developed

based on today’s diesel engines. This combustion system

allows limited pollutants such as nitrous oxides and soot

particles to be reduced, while at the same time

significantly improving efficiency. CCS therefore

combines the benefits of diesel and petrol engines and may

well prove to be one of the most important new engine

concepts of the coming decades.

Over the long term, we expect locally emission-free

mobility to gain ground, for example in the form of battery-

operated electric vehicles or vehicles powered by fuel cells.

Hydrogen-operated fuel-cell vehicles are currently the only

emission-free system capable of providing an acceptable

range. The Volkswagen Group’s research department has

developed a unique high-temperature fuel cell: thanks to

the use of electrodes permitting a higher operating

temperature for fuel cells, the new system is smaller, more

efficient and less expensive than any fuel cells to date.

Although electric vehicles have the best energy rating,

their range does not yet satisfy customer requirements:


160

based on current storage technology, they can be expected

to provide a maximum range of 50 km. Not until there have

been significant advances in pure research into battery

storage technology will pure electric traction become

possible.

Our fuel strategy centers on diversifying energy sources

and at the same time developing new fuels. The main focus

here is on second-generation biofuels, which Volkswagen

refers to collectively as “SunFuel”. These harbor

considerable potential in terms of reducing CO2, do not

represent competition for food production and are

compatible with existing infrastructure. SunEthanol is one

example of a biofuel optimized for petrol engines. It is

derived from straw using a biochemical process developed

by IOGEN. The equivalent fuel for diesel engines is called

SunDiesel. This synthetic fuel can be manufactured from a

number of different primary sources such as biomass or

residual biomaterials. The quality and chemical

composition of the end product do not depend on those of

the primary energy used. Synthetic fuels can be used in

both current and future combustion engines. They can also

be adapted to the requirements of enhanced engine

technology more easily than conventional fuels. At the

same time, they offer considerable potential for reducing

harmful emissions due to their purity of composition and

the fact that their properties can be tailored. Furthermore,

they can be ideally adapted to the new CCS combustion

system, thereby further increasing this system's potential

in terms of fuel consumption and exhaust emissions.

Fourth internal environmental award

The internal Volkswagen Environmental Award, which

honors employees who take a proactive approach to

environmental protection in their particular field of work,

was presented for the fourth time in 2007.

For the first time, one of the award winners came from

a product-related area: a technical development team was

presented with an award for developing the world’s first

seven-speed direct shift gearbox (DSG). The DSG can

increase performance compared with conventional

automatic gearboxes and offer greater ease of use and a

reduction in fuel consumption of up to 15% compared

with manual gearboxes. It requires considerably less oil

and no oil change throughout its entire lifecycle. In

addition, the gearbox lacks specific oil-circuit components

such as a suction filter and oil cooler. Due to the more

compact design, it has also been possible to minimize the

weight. The DSG has so far been used in models from the

Polo to the Passat.

This award, which was originally presented nationally,

will in future be offered annually across Europe, thus

ensuring that the importance of our employees’

commitment to the environment is recognized to a greater

extent.

Mobility research

By carrying out research and development on road traffic

as an integrated system, the Volkswagen Group is

assuming responsibilities that extend beyond automotive


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manufacturing. Our aim in doing so is to find intelligent

and sustainable mobility solutions by working together

with partners in science, politics and industry.

Together with the Council for Technical Sciences of the

Union of the German Academies of Sciences and

Humanities, for example, we have prepared forecasts of

traffic volumes in Germany for the period to 2020. Our

main findings are that traffic volumes will rise significantly

and that, due to the continuous increase in traffic density,

solutions will need to be drawn up at various levels. Viable

mobility solutions require sound infrastructure on a

sufficient scale. They also require innovative traffic

management methods that capture and quickly process

traffic information nationwide, use that information to

prepare route recommendations and offer optimized

accident and roadworks management solutions.

This information is a precondition for intelligent

vehicle technology to fulfill its potential. For example, the

approach developed by the research function under the

working title “Baustellen-Lotse” (“Roadworks Pilot”) uses

advanced systems technology such as adaptive cruise

control and extends this to include a traffic assistance

function: the vehicle helps its driver to adopt an optimal

driving style in heavy traffic, thereby reducing traffic hold-

ups, environmental impact and journey times and

increasing road safety. At the same time, a reactive control

strategy covering distance, speed and acceleration

increases actual road capacity.

The key to greater efficiency in this area lies in a

combination of intelligent roads, innovative traffic

management, highly developed vehicle technology and

sound infrastructure. The Volkswagen Group is

participating in “Adaptive and Cooperative Technologies

for Intelligent Traffic”, a German research initiative that

was launched in September 2006, with a view to further

developing and improving these technologies.

Corporate social responsibility and sustainability

The Volkswagen Group is optimizing its CSR and

sustainability management with its “Coordination CSR

(Corporate Social Responsibility) and Sustainability” office

set up in 2006. This reports to the CSR steering group,

which includes all central Group functions and the Group

Works Council. The Coordination office is tasked with

networking internal units and improving exchange

processes between the line departments. A cross-function

CSR project team has been set up for this purpose.

The office is responsible for raising Volkswagen’s

profile with regard to sustainability ratings and rankings.

Efforts are concentrated, among other things, on

developing and introducing an indicator-based

information system for CSR and sustainability. In addition

to the office’s internal advisory role, the main focus in

coming years will be on active and transparent dialog with

stakeholders.

162

In this chapter, we first explain how the Volkswagen Group

updates the risk documentation it uses. The Group’s risk

situation is documented annually in accordance with the

requirements of the Gesetz zur Kontrolle und Transparenz

im Unternehmensbereich (KonTraG – German Act on

Control and Transparency in Business); the adequacy of

this documentation is also assessed. We then describe the

risk management system - an operational element of our

business processes that enables risks to be identified in a

timely manner, the extent of those risks to be assessed and

appropriate countermeasures to be introduced. In the

Report on Expected Developments from page 170 to 176,

we outline the opportunities arising from our activities.

UPDATING THE RISK DOCUMENTATION

The results of the standardized surveys by the risk

managers of the individual divisions and the managing

directors of investees provide an overall picture of the

potential risk situation that is updated on an annual basis.

Every risk that is identified is assessed to determine the

likelihood of its occurrence; the probable extent of the loss

in the event of its occurrence is then measured. In

addition, guidelines and organizational instructions are

assigned together with the countermeasures that are to be

taken to manage the risk in question. The revision of the

risk documentation is coordinated centrally by Group

Controlling in conjunction with Group Internal Audit. With

the auditors in overall charge, the plausibility and

adequacy of the risk reports are examined on a test basis in

detailed interviews with the divisions and companies

concerned. Based on this information, the auditors

assessed the effectiveness of our risk management system

and established both that the risks identified were

presented in a suitable manner and that measures and

rules were assigned to the risks adequately and in full. This

means that we conform to the requirements of the

KonTraG. In addition, the Financial Services Division is

subject to regular special audits by the Bundesanstalt für

Finanzdienstleistungsaufsicht (BaFin – the German

Federal Financial Supervisory Authority) in accordance

with section 44 of the Gesetz über das Kreditwesen (KWG –

German Banking Act) and controls by association auditors.

Workflow rules, guidelines, instructions and

descriptions are systematically recorded and can for the

most part be accessed online. Internal controls by the

heads of the Group Internal Audit, Quality Assurance,

Group Treasury, Brand Controlling and Group Controlling

organizational units ensure that these rules are adhered to.

Risk Report A responsible approach to risk

Business success is based not least of all on a forward-looking approach to

identifying and controlling risk. Our comprehensive risk management system

guarantees the security we require in managing our activities.


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GOALS AND FUNCTIONING OF THE

RISK MANAGEMENT SYSTEM

The purpose of the Group’s risk management system is to

identify potential risks at any early stage so that suitable

countermeasures can be taken to avert the threat of loss to

the Company, and any risks that might jeopardize its

continued existence can be ruled out. By using an efficient

risk management system, we are able to identify risks

promptly, to assess them and to counter them.

The risk management system is an integral part of the

Volkswagen Group’s structure and workflows and is

embedded in its daily business processes. Events that may

entail a risk are identified and assessed on a decentralized

basis in the divisions and at the investees. Counter-

measures are introduced immediately, their effects are

assessed and the information is incorporated into the

plans in a timely manner. This means that the Board of

Management always has access to an overall picture of the

current risk situation through the documented reporting

channels.

We are prepared to enter into transparent risks that

are proportionate to the benefits expected from the

business.

INDIVIDUAL RISKS

The following information on individual risks relates to the

2008 to 2010 planning period.

Macroeconomic risk

High energy and commodity prices, growing protectionism

and ongoing imbalances in foreign trade pose significant

risks to global economic growth. In particular, these

factors could result in higher inflation rates, rising interest

rates, sharper fluctuations in exchange rates and

consequently a significant reduction in global economic

growth. A possible recession in the USA would further

exacerbate these trends. Changes in legislation, taxes or

customs duties in individual countries may also result in

significant risks for the Volkswagen Group. In the

following sections on the individual risk categories, we

explain how we manage these threats.

Sector-specific risk

In 2007, the growth drivers of the global passenger car

markets were Asia, South America and Central and

Eastern Europe. However, in some of the countries in

these regions, there are high customs barriers or

minimum local content requirements for domestic

production. These factors make it difficult to achieve a

larger increase in sales volumes. Our substantial market

coverage in traditional markets entails risks that relate

mainly to price levels. For example, massive discounts,

mainly in the US automotive market, but also in Western

Europe and China, continue to place the entire sector

under pressure. Faced with these conditions, we felt

compelled to maintain our sales promotion activities at the

previous year’s level. As a supplier of volume models, we

would be particularly affected if competing manufacturers

were to step up their sales incentives again. We continue to

approve loans for vehicle finance on the basis of the same

cautious principles applied in the past, taking into account

regulatory requirements of section 25a(1) of the Kredit-

wesengesetz (KWG – German Banking Act).

We would be especially hard hit by a fall in demand or

prices in Western Europe since we sell the majority of our

vehicles in this market. We counter this risk with a clear,

customer-oriented product and pricing policy. Overall

however, our delivery volume outside Western Europe is

widely diversified across the markets of North America,

South America/South Africa, Asia Pacific and Central and

Eastern Europe. We hold, or intend to attain, a leading

position in a number of established and emerging

markets. This means that we are well able to balance shifts

in volumes between the individual markets. In addition,

we are able to meet regional requirements by forming

strategic partnerships.

Ever tougher lending conditions make it difficult for

our dealerships and sales companies to finance their

operations via bank loans. We have minimized the risk of

their insolvency by setting up our own system of support,

whereby we offer automotive dealers and outlets financing

on attractive terms via our financial services companies.

164

Research and development risk

With the help of extensive trend analyses, customer

surveys and scouting activities, we counter the risk that

customers might not embrace our new products. By taking

these measures, we ensure that trends can be recognized

at an early stage and that their relevance for our customers

is verified in good time.

Another risk is that products or modules cannot be

developed in accordance with the specified deadlines,

costs or quality standards. We therefore continuously and

systematically monitor the progress of all projects and

make changes to reflect the original targets. If there are

deviations from targets, countermeasures can be taken in

good time. Furthermore, our project organization

supports all areas involved in the process, ensuring that

they work together effectively. This enables requirements

to be presented and activities planned in good time.

Risks are not concentrated on particular patents or

licenses due to our wide variety of research and

development activities.

Procurement risk

2007 saw a continuation of the global increase in

commodity prices. In addition to the ongoing price

inflation in individual commodities, price increases driven

by speculative trading, particularly in exchange-traded

commodities, also had a major impact. We counter these

trends by means of targeted hedging strategies. The use of

materials is continually being optimized in cooperation

with Research and Development and Production. In

addition, intensive studies are carried out to determine

whether alternative or recycled materials can be used.

Our cooperation with suppliers can also give rise to

risks. We are therefore organizing our portfolio of

suppliers for the coming years strategically, bearing in

mind local procurement opportunities in particular. These

activities continue to focus on Asia and Eastern Europe.

The installed risk management system, in which we record

information on the creditworthiness of our suppliers,

protects us against the effects of insolvency on the part of

individual suppliers.

Production risks relating to demand

Changes in global demand for passenger cars can affect

the number of vehicle types produced. If our production

plants are working largely to capacity at a time of above-

average demand, there is a risk of supply shortages, for

example. We counter this risk by means of our flexible

production management. This is achieved primarily

through our turntable concept. Flexible working time

models offer further opportunities to make adjustments.

Risks arising from changes in demand

Consumer demand depends not only on real factors such

as disposable income, but also to a significant extent on

psychological factors that are impossible to plan for.

A combination of higher commodity prices and the

uncertainty surrounding future CO2 emission taxation may

lead to unexpected consumer reluctance to spend, which

may in turn be exacerbated by media reports. This is

particularly the case in saturated markets such as Western

Europe, where demand may plummet as a result of owners

keeping their vehicles for longer periods. We attempt to

counter this consumer reluctance to spend through our

fuel and drivetrain strategy, by offering attractive new

models and by maintaining an intense customer focus.

Furthermore, if the final details of a CO2 tax for Europe

are worked out, this may cause a shift in demand towards

certain types of engine within the range and thus have a

detrimental effect on our financial results.

In the rapidly expanding markets of Asia and Eastern

Europe, risks can also arise due to government inter-

vention when lending restrictions and tax increases have

an adverse effect on private consumption.

Demand risks can also arise owing to further increases

in oil prices. We counter these risks by developing fuel-

efficient vehicles and alternative fuels as part of our fuel

and drivetrain strategy.


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Dependence on fleet customer business

The Volkswagen Group’s share of the fleet customer

segment, which is considerably less dependent on the

macroeconomic environment than the private customer

segment, remained unchanged at 44% in 2007. Fleet

customer business therefore helped the Group to attain a

record market share in Germany. Given the large number

of new models, the positive trend in fleet customer

business is expected to continue in 2008. With the Golf

Variant available for the first time for the full twelve

months of the year and the Audi A4 Avant available from

spring 2008, we are in a good position going forward. In its

activities in the corporate fleet segment, the Škoda brand

succeeded for the first time in becoming one of the leading

German importers in 2007.

Fleet customer business continues to be marked by

increasing concentration and internationalization.

Thanks to its extensive product range and target group-

oriented customer care, the Volkswagen Group was also

able overall to extend its market leadership in Europe.

Default risks are not concentrated on individual corporate

customers.

Quality risk

The ever increasing complexity of the vehicles and the

introduction of new environmentally-friendly technologies

such as hybrid drives present hitherto unknown challen-

ges for the quality assurance function. In this context, new

expertise and more extensive safety mechanisms are being

developed and built up in close cooperation with Procure-

ment and our suppliers, thereby minimizing quality-

related risks from the outset.

Personnel risk

The Volkswagen Group has an established position in the

global marketplace where it competes for specialist and

management personnel. The knowledge and expertise of

our employees constitute one of our most important

success factors. There is a risk that knowledge – and

therefore market advantages – will be lost as a result of

employee turnover and the part-time scheme for

employees near to retirement. Through intensive

knowledge management, we are endeavoring to retain

existing know-how in the company and to transfer it to

other employees. We do so using suitable tools such as the

“knowledge relay”, whereby the practical knowledge of

leaders and experts leaving the company is systematically

transferred to their successors. In addition, we offer our

employees, management and leaders a broad and tailored

range of development programs and incentive systems.

Our aim here is to position the Volkswagen Group as a top

employer and build employee commitment. As well as this,

our wide range of training ensures that we have highly

skilled new employees.

Environmental protection regulations

On July 1, 2002, the European End-of-Life Vehicles

Directive was transposed into German law by way of the

Altfahrzeuggesetz (German End-of-Life Vehicles Act). This

act guarantees that end-of-life vehicles will be disposed of

free of charge through the collection points designated by

manufacturers and importers. This initially applied only to

vehicles registered after the law came into force, but as of

January 2007, it was extended to all end-of-life vehicles. At

present, we are unable to conclusively assess the impact of

the EU’s eastward enlargement on the collection of end-of-

life vehicles. As a result, no clear forecast can be made

regarding the likely financial burden on the Volkswagen

Group in individual EU member states. We have reviewed

our existing provisions. In addition, our systems and

cooperation arrangements for disposing of end-of-life

vehicles offer us the opportunity to manage this risk.

Conventional air conditioning systems still contain

hydrochlorofluorocarbons (HCFCs) as a cooling agent. EU

legislation stipulates that, as of January 1, 2010, only

recycled material may be used in existing systems for the

purpose of maintenance. Since there is no market for

recycled cooling agents at the present time, bottlenecks

may occur in Volkswagen AG’s systems as of 2010. As of

January 1, 2015, the use of all HCFCs will be prohibited in

Europe. Without sufficiently early investment in alter-

natives, this could lead to production facilities being shut

down temporarily, which in turn would lead to loss of

production. In view of this, Volkswagen will develop and

166

implement a program in the coming years in order to

phase out the use of this agent. At the Group’s

environmental conference in December 2007, a working

group elaborated the main elements of a phase-out

strategy. The measures required to implement that strategy

will be incorporated into future investment plans.

Chlorine-free fluorocarbon refrigerants (F gases),

which were introduced in the past to replace the

aforementioned HCFCs, are also subject to restrictions

owing to their damaging effect on the earth’s climate. As of

2007, there have been increased requirements for

maintaining systems and verifying the absence of leaks.

This means that, depending on their size, systems must be

inspected several times a year by certified refrigeration

specialists. In order to meet these requirements, “LEC”

(Leakage and Energy Control) software was introduced at

Volkswagen AG’s plants, thereby enabling stationary air

conditioning systems to be managed and controlled.

As regards emissions legislation, the EU decided on a

wide range of stricter requirements, primarily affecting

diesel technology. However, in the case of light and

medium passenger cars, these requirements will be met by

optimizing current technology. In the case of heavy

passenger vehicles, the rules as they currently stand

require that an aftertreatment system for nitrogen oxide be

introduced. As the automotive industry has no experience

of nitrogen oxide emissions aftertreatment for diesel

vehicles and as the technology that must now be developed

will require additional equipment and servicing, it is not

possible to predict how customers will accept heavy

passenger cars in future. The cost difference compared

with petrol engines will also increase further. In future,

diesel engines will also have to reposition themselves with

regard to the obligation to add biofuels to fossil fuels, since

diesel particulate filter technology does not permit any

significant increase in the amount of biofuels added.

Reductions in greenhouse gas emissions are being

intensively pursued by the global community and in

particular by the EU and the Federal Republic of Germany.

The climate and energy plan decided by the EU in March

2007 states that, by 2020, it aims to reduce greenhouse gas

emissions by at least 20% compared with 1990 levels and

to expand renewable energies to 20%. The Federal

Republic of Germany aims to reduce greenhouse gas

emissions by 40% over the same period. The key issues

paper on an “Integrated climate and energy program”

decided by the federal government in September 2007 lists

individual measures that are intended to help increase

energy efficiency and expand renewable energies. Key

elements of this package, such as expanding renewable

energies in the heat and electricity markets and updating

the Energieeinsparverordnung (EnEV – German Energy

Conservation Regulation), may lead to new requirements

regarding the construction and renovation of buildings. In

future, energy tax relief for industry is to be linked to the

introduction and implementation of the planned energy

efficiency improvement processes (energy management

systems). There is also the risk of further price rises in the

energy sector, for example as a result of supply shortages

and tax increases to finance individual measures in the key

issues paper. Volkswagen is using an energy management

system and energy conversation programs to counteract

the possible financial repercussions and risks to its image.

Furthermore, there is a general risk of increased

environmental protection regulations with a view to

limiting global carbon dioxide emissions.

The Umweltschadensgesetz (USchG – German

Environmental Damage Act), which came into force on

November 14, 2007, increases the liability of companies

for damage to flora and fauna, irrespective of whether the

operator is guilty of any misconduct. Previously, liability

extended only to incidents that caused third parties to


>


suffer personal injury, damage to property or loss of

financial assets. In order to assess the risk, the Group

needs to establish which animal or plant species receiving

special protection under EU law are native to the area of

each of its European locations and under what conditions

they might be at risk. This information will provide the

basis for appropriate insurance protection. The investi-

gation began in October 2007 with a pilot project at the

Emden plant, which was successfully completed in the

same month. These investigations will be rolled out to our

other German locations in early 2008. The environmental

management systems introduced and certified at all

Volkswagen locations will help to reduce the risks.

Legal cases

In the course of their operating activities, Volkswagen AG

and the companies in which it is directly or indirectly

invested become involved in legal disputes and official

proceedings in Germany and internationally. In

particular, such proceedings may occur in relation to

suppliers, dealers, customers, or investors.

For the companies involved, these may result in

payment or other obligations. Particularly in cases where

US customers assert claims for vehicle defects individually

or by way of a class action, cost-intensive measures may

have to be taken and substantial compensation or punitive

damages paid.

Where transparent and economically viable, adequate

insurance cover is taken out for these risks and

appropriate provisions recognized for the remaining

identifiable risks. The Company does not believe,

therefore, that these risks will have a sustained effect on

the economic position of the Group.

However, as some risks cannot be assessed or can only be

assessed to a limited extent, the possibility of loss or

damage above and beyond the insured and recognized

amounts cannot be ruled out.

The lawsuit challenging the resolutions adopted by the

Annual General Meeting of Volkswagen AG on June 7,

2001 relating to approval of the actions of the then

members of the Board of Management and of the

Supervisory Board for fiscal year 2000 and to the

authorization to acquire treasury shares issued on that

occasion has been settled. The plaintiff, Liverpool Limited

Partnership, Bermuda, and Volkswagen AG together

notified the Braunschweig Regional Court on June 4, 2007

that the matter has been settled. The action to set aside the

shareholder resolutions does not therefore affect the

validity of the resolutions by the Annual General Meeting.

This, together with the corresponding agreement between

the parties, was published in the electronic

Bundesanzeiger (Federal Gazette) on June 8, 2007.

The public prosecutor's office in Braunschweig has

carried out investigations following criminal charges filed

by Volkswagen AG in June 2005 relating to the establish-

ment of front companies, false expenses claims and

privileges for works council members. At the beginning of

July 2005, Volkswagen AG had also commissioned auditors

KPMG to conduct internal investigations. As not all of the

investigations and legal proceedings have been completed

with a final and non-appealable decision reached, it has

not been possible to conclusively examine the possibility of

recourse against the persons in question. Based on the

findings in the KPMG report, Volkswagen AG had already

received insurance settlements in the amount of

€4.5 million in fiscal year 2006.

168

Risks arising from financial instruments

The Executive Committee for Liquidity and Foreign

Currency approves risk limits, authorized financial

instruments, hedging methods and horizons, and decides

on the introduction of country risk limits. Risk

management and control activities are the responsibility of

Group Treasury. The Group Board of Management is

informed of the current risk situation on a regular basis.

Our business activities entail financial risks that may

arise from changes in interest rates, exchange rates,

commodity prices and fund prices. We manage these risks

by employing primary and derivative financial

instruments. Financial transactions are only entered into

with prime-rated counterparties. Interest rates and

currencies are mainly managed centrally by Group

Treasury. The Group guards against interest rate risk and

risks arising from fluctuations in the value of financial

instruments by means of interest rate swaps, cross-

currency swaps and other interest rate contracts.

Financing extended to subsidiaries within the Volkswagen

Group is usually hedged by matching the amount and

maturity of the refinancing.

We reduce currency risks primarily through natural

hedging, that is to say through the flexible management of

production capacity at our global locations. The remaining

currency risk is hedged by means of financial hedging

instruments such as currency forwards, currency options

and cross-currency swaps. We use these transactions to

limit the currency risk associated with forecasted cash

flows from operating activities and intra-Group financing

in currencies other than the respective functional

currency. These contracts may have a term of up to five

years. The transactions are mainly used to hedge the euro

against the US dollar, the pound sterling, the Swiss franc,

the Japanese yen, the Russian rouble and the Swedish

krone. Together, these six currencies represent around

90% of our foreign currency risk from forecasted cash

flows.

The purchasing of raw materials gives rise to risks relating

to availability and price trends. We limit these risks by

entering into forward transactions. We have used

appropriate contracts to hedge some of our requirements

for commodities such as aluminum, copper, platinum,

rhodium and palladium over a period of up to 60 months.

Liquidity risks

By means of a liquidity forecast with a rolling planning

horizon and the maintenance of sufficient liquidity

reserves, we ensure that the Company is solvent at all

times.

We cover the capital requirements of the growing

financial services business mainly through borrowings at

matching maturities raised in the national and

international financial markets. This will remain our

preferred financing option in future. Loan finance will be

used only for short-term working capital requirements and

as a backup for debt issuance programs. We manage risks

arising from cash flow fluctuations through liquidity

reserves and confirmed credit lines. This extensive range

of options rules out the possibility of any liquidity risk to

the Volkswagen Group.

A rating downgrade could adversely affect the terms

attached to the Volkswagen Group’s borrowings.

Since 2004, Volkswagen Bank GmbH has been given a

separate rating by Moody's Investors Service. In 2006, we

were also able to obtain a separate rating for Volkswagen

Bank GmbH from Standard & Poor's. The rating given to

Volkswagen Bank GmbH by both Standard & Poor’s and

Moody’s Investors Service is one notch higher than that of

Volkswagen AG and Volkswagen Financial Services AG. The

ratings of both agencies are thus oriented more on

Volkswagen Bank GmbH’s own business and financial

situation. This provides a good opportunity for Volkswagen

Bank GmbH to secure attractive borrowing terms. For the

current ratings of Volkswagen AG, Volkswagen Financial

Services AG and Volkswagen Bank GmbH, plus information


>


on our new issues in the capital market in fiscal year 2007,

please see the Shares and Bonds chapter on page 128 of

this report.

The Treasury department of Volkswagen Financial

Services AG safeguards the liquidity of the Financial

Services Division as well as managing credit, default and

market risks. Risk Controlling is responsible for

measuring, analyzing and monitoring market risk

positions.

In the Notes on pages 240 to 249, we explain our

hedging policy, the hedging rules and default and liquidity

risks, quantify the hedging transactions mentioned and

outline the market risks within the meaning of IFRS 7.

Residual value risk in the financial services business

In the financial services business, we agree to buy back

selected vehicles at a residual value fixed at inception of

the contract so that we are able to realize market

opportunities. We evaluate these lease contracts at regular

intervals. We take the necessary precautions in the event of

potential risks.

IT risk

We use redundant firewall systems to protect our IT

systems against unauthorized access from outside. Virus

scanners and restricted physical and data access rights

offer additional protection. We are constantly checking

and updating the information security systems in use and

back up all data resources daily. Thanks to the measures

taken, we consider the likelihood of a threat to our

information systems and the security of our data to be very

low.

Other factors

In addition to the risks already outlined, there are other

factors that cannot be predicted and are therefore difficult

to manage. These could have an adverse effect on the

further development of the Volkswagen Group. These

factors include natural disasters, epidemics and terror

attacks.

SUMMARY OF THE RISK SITUATION OF THE GROUP

The Company’s overall risk situation results from the

individual risks described above. Our comprehensive risk

management system ensures that these risks are

controlled. Furthermore, taking into account all the

information known to us at present, no risks exist which

could pose a threat to the continued existence of the

Volkswagen Group.

REPORT ON POST-BALANCE SHEET DATE EVENTS

No significant events other than those already mentioned

occurred after the end of the fiscal year.

170

After presenting the significant risks to the Volkswagen

Group’s operating activities in the previous chapter, in the

following we will explain the opportunities arising from

expected future developments. The potential identified by

the Group is quickly incorporated into its plans so that

market opportunities can best be leveraged as they arise.

These emerge mainly as a result of our moving into new

markets, developing additional products and

implementing technical innovations.

GENERAL ECONOMIC DEVELOPMENT

Our plans assume that global economic growth in 2008

will be lower than in 2007. Growth will continue to be

slowed by persistently high commodity prices, particularly

oil prices. The effects of the crisis in the US property

market also pose a major threat. The fall in US property

prices and the resulting credit risks could damage the

North American economy and – as a result – other

economies worldwide. We expect the strongest growth to

be recorded in Asia, especially in China and India, in

South America and in the countries of Central and Eastern

Europe.

North America

US economic growth will continue to slow in 2008.

Although this trend will also impact negatively on the

economy in Canada and Mexico, high oil prices will

have a positive effect here.


We are predicting lower growth than in 2007 for Brazil and

a sharper fall in GDP growth in Argentina. Growth will also

slow in South Africa.

Asia-Pacific

The Chinese economy is likely to experience double-digit

growth again in 2008, while the Japanese economy will

continue to weaken. India will maintain a fast pace of

growth.

Europe

GDP growth in Western Europe is expected to be lower

than in 2007. The Central and Eastern Europe economies

will expand at an above average rate, but the growth rates

will weaken compared with the previous year.

Report on Expected Developments Additional models and new markets offer opportunities

The global economy and global automotive demand will both continue to

grow in 2008. Thanks to its expanded model range and the new markets it

has entered, the Volkswagen Group will exceed the previous year’s delivery

figures.


>


Germany

Real GDP growth in Germany is likely to drop below 2% in

2008 due to weakening exports and only moderate growth

in domestic demand.

DEVELOPMENT OF AUTOMOTIVE MARKETS

The main automotive markets are likely to record mixed

trends in 2008. While we expect double-digit increases in

demand in Brazil, India and China, we anticipate a slight

decline in new registrations in Western Europe and North

America.

North America

In the USA, we expect the economic climate to cool, partly

because of the crisis in the mortgage market. This,

combined with high fuel prices, will impact negatively on

demand for new vehicles. In the Canadian and Mexican

markets for passenger cars and light commercial vehicles,

we expect to see moderate growth.


The South American markets will continue to benefit from

the positive economic trend. We expect strong growth rates

here in 2008. The South African passenger car market has

been affected by a sharp downturn since mid-2007 after

the government imposed tighter restrictions on lending.

We expect automotive demand to stagnate in 2008.

Asia-Pacific

In the markets in the Asia-Pacific region, we expect

demand to continue growing in 2008, particularly in China

and India. In Japan, the market as a whole is likely to

remain on a level with the previous year.

Europe

In Western Europe (excluding Germany), we assume that

demand for passenger cars will be slightly lower than in

2007 since none of the main markets is expected to grow.

In Central and Eastern Europe, particularly in Russia, it is

likely that new registrations will continue to rise.

Germany

Following a weak year in 2007, demand for passenger cars

is expected to pick up slightly in Germany in 2008,

although high fuel prices and economic uncertainty may

have a negative impact.

DEVELOPMENT OF EXCHANGE RATES

Our planning for fiscal year 2008 regarding unit sales and

factory capacity utilization is based on the estimates of

economic institutes and capital market players regarding

the development of exchange rates worldwide. The

majority of them expect the US dollar and sterling to

continue to weaken against the euro. The Russian rouble

and the Chinese renminbi will strengthen against the

euro, however.

DEVELOPMENT OF INTEREST RATES

In the euro zone, we expect minor fluctuations in interest

rates in 2008. In the USA, interest rates are likely to

continue falling.

DEVELOPMENT OF COMMODITY PRICES

We expect prices for commodities and steel to remain at a

high level but fluctuate sharply in 2008. The supply

situation will not ease very much. It will take several more

years to build up new capacity in this sector.

FORWARD-LOOKING RESEARCH IN THE

AUTOMOTIVE INDUSTRY

As part of our research work, we dedicate a considerable

amount of time and energy to traffic-related megatrends

that will affect our products and processes in the future.

These include not only the increasing importance of

environmental and climate protection aspects, but also the

strong growth of megacities in some markets, which

presents new challenges for infrastructure. At the same

time, micromarkets will grow up alongside existing mass

markets. A further point of focus is demographic change

and the constant increase in the proportion of over-60s,

who show a high degree of quality awareness, for example.

172

In addition, customer requirements are diverging across

society as a whole due to growing differences in income

levels. And tomorrow’s world of work will be more flexible

than is the case today with regard to the tasks performed,

the way in which work is organized, working hours and

places of work. As a result of all these trends, our products

will be shaped to an even greater extent by intelligent and

networked technology and ease of use by people. Driver

assistance systems will bring increasing improvements in

safety, while new vehicle materials will offer enhanced

functionality and comfort.

NEW MODELS

A number of highlights will selectively complement the

Volkswagen Group’s model range in 2008.

The Volkswagen passenger cars brand will expand its

range to include a dynamic coupé based on the Passat

series. This vehicle boasts a sporty body line and delivers

an appropriate level of performance without sacrificing

the functionality typical of Volkswagen. The new Scirocco

will also be available in 2008. This compact coupé offers

above-average performance and emotional design at an

attractive price. In the spring, Volkswagen will launch its

model rollout for the US market by unveiling the Routan,

its first model for the country’s important minivan

segment. The second half of the year will be dominated by

the new Golf. Its unique combination of attributes, such as

extremely economical engines, outstanding quality and

excellent value for money, will enable the Golf to continue

setting standards and extending its lead over others in its

class.

Audi will launch three new models in the spring. In

addition to the new Audi RS 6 Avant*, which combines

comfort with a very sporty profile, the A4 series will be

complemented by the new Audi A4 Avant. The Audi A3

Cabrio, which sets standards for compact convertibles

with a traditional soft top, will also be presented to the

public. A further highlight in the course of the year will be

the presentation of the Audi Q5, which pushes the

boundaries of driving dynamics and off-road capability.

Škoda will unveil the successor to the Superb, a hatch-

back with a roof-hinged lift gate.

In the small car segment, SEAT will present the new

Ibiza series. Available in a family-friendly five-door version

and a sporty three-door version, the new Ibiza will impress

its customers with a number of innovations.

The Bentley brand will present the luxury Brooklands

coupé*. The third Arnage model is a captivating vehicle

offering the ultimate in sportiness and luxurious comfort.

The successful BlueMotion eco-label of the Volkswagen

Passenger Cars brand is to be extended to the Volkswagen

Commercial Vehicles brand. The Caddy, for example, will

also be available in a BlueMotion version in 2008.

EXPECTED DELIVERIES TO CUSTOMERS AND MARKET SHARE

After we delivered more than 6 million vehicles to

customers last year, we will continue to pursue our

strategic objectives in 2008. Thanks to our successful

model policy, we are well placed to achieve another year-

on-year increase in deliveries to customers.

We intend to further increase our global market share

by moving into additional segments and extending our

presence in expanding markets. In Germany and the other

Western European markets, we expect moderate increases

in our market share despite the advanced stage of market

saturation.

STRATEGIC FOCUS IN SALES In addition to scaling back activities within the dealership

system that do not add value, we will take measures in the

European markets to enable us to respond to the changes

to the Block Exemption Regulation expected in 2010. With

its brands, the Volkswagen Group is preparing to exploit

possible opportunities resulting from further European

single market liberalization and to promptly identify and

avert possible risks. In addition, the joint marketing

activities of the Automotive and Financial Services

Divisions will be more tightly interwoven and integrated so

that we can continue to develop attractive and innovative

products for our customers.

NEW MARKETS OFFER OPPORTUNITIES

Our future strategic focus will also include making greater

use of opportunities in emerging markets. India, Russia

and the ASEAN region harbor the greatest growth potential

in the global automotive market.



>


India is one of the most important emerging markets

worldwide. Unit sales of vehicles (passenger cars and light

commercial vehicles) will rise from around 1.3 million

units a year at present to an estimated 3 million units in

2015. In less than ten years' time, therefore, India will

become one of the five most important automotive

markets, after the USA, China, Japan and Germany.

This presents particular growth opportunities for the

Volkswagen Group since Škoda is so far the only brand to

have established a foothold in the Indian market and

further brands will be able to target additional customer

segments. In 2007, the sales company Volkswagen Group

Sales India P.L. was established with this in mind. We also

started to expand the dealer network and to assemble

semi-knocked down Volkswagen Passenger Cars and Audi

models at Škoda’s Aurangabad plant, where the Audi

brand is assembling Audi A6 models in an exclusive area.

By 2009, we will build a production plant in Pune with a

view to producing a vehicle specially designed for the

needs of Indian customers.

In Russia, unit sales of vehicles (passenger cars and

light commercial vehicles) will rise from around 1.6

million units a year at present to over 3 million units in

2015, making it one of the ten most important automotive

markets. Volkswagen AG is already importing and

distributing all Group brands successfully via its own sales

company. On November 28, 2007, the Volkswagen Group

opened a plant in the town of Kaluga, 160 kilometers south

west of Moscow, with a view to even better exploiting

growth opportunities in the Russian market. At present,

semi-knocked down Volkswagen Passenger Car and Škoda

models are being assembled there. Parallel to this, a full

production line for Volkswagen Passenger Car and Škoda

models, including body shell production, painting and

assembly facilities, is being installed at the same location

and will become operational in the first half of 2009.

We also see substantial opportunities for significant

additional sales volumes in the ASEAN region, whose

countries impose import duties and other non-tariff trade

barriers. Volkswagen aims to gain a sustained foothold in

this economic area. With deliveries expected to reach

around 2.4 million vehicles in 2015, the automotive

markets in this region – in which the Volkswagen Group

has hardly been represented so far – harbor enormous

growth potential. The largest passenger car market in the

ASEAN economic area is Malaysia. We therefore

established a sales company in the capital, Kuala Lumpur,

at the end of 2005. Due to the legal framework there,

which may change at any time, it is only possible to gain a

sustained foothold in the automotive market via a local

assembly line for semi-knocked down vehicles. The

situation is similar in the other large markets of Thailand

and Indonesia. In this context, we are currently

investigating how we can enter these markets without

making substantial additional investments.

The growth markets mentioned above are undergoing

a process of mass mobilization that has long since ended in

saturated markets such as Europe, the USA and Japan.

Over the coming years, hundreds of millions of people will

try to gain the mobility provided by a car. Due to the low

purchasing power per household in these countries, there

will be a demand for basic mobility at extremely favorable

prices. Automotive manufacturers able to offer fully

functioning vehicles at prices of between €3,000 and

€6,000, depending on size, will meet with very strong

demand. This provides the opportunity to produce and sell

in high volumes. However, entering a low-cost segment of

the market also poses considerable risks, as a brand’s

positioning may suffer as a result.

Significant changes will be seen in the lower-cost

market segments over the coming years. One thing is

already apparent: it is impossible for any company with its

sights on a leading role in the global automotive market to

ignore these trends.

174

INVESTMENT AND FINANCIAL PLANNING 2008 TO 2010

AUTOMOTIVE DIVISION

in € billion

Cash flows fromoperating activities

Cash flows frominvesting activities

Gross cash flow 35.0 Change in working capital 2.3

Investments in property,plant and equipment 20.9

Surplus 8.4

Development costs 6.5

0 5 10 15 20 25 30 35

Net cash flow

Other 1.5

40

INVESTMENT AND FINANCIAL PLANNING 2008 TO 2010

Our investments in the Automotive Division will be

€28.9 billion in the period 2008 to 2010. As well as

investments in property, plant and equipment, this

total amount also includes additions to capitalized

development costs and investments in financial assets.

€20.9 billion is attributable to property, plant and

equipment, of which more than half will be invested in

Germany. Following the relatively low figure achieved in

recent years, the ratio of investments in property, plant

and equipment to sales revenue (capex) will rise to a

competitive level averaging around 6% over the next three

years as a result of upfront expenditures on new products,

powertrains and production sites.

Most of the total amount invested in property, plant

and equipment in the Automotive Division during the

planning period (€13.8 billion) will be spent on

modernizing and extending the product range. The main

focus will be on new vehicles, successor models and

derivatives in virtually all vehicle classes. Over the next

three years, the Volkswagen Group will develop and launch

a number of additional new models, thereby continuing its

new model rollout and tapping other markets and

segments. In powertrain production, the Group will

launch new generations of petrol engines with improved

performance, fuel efficiency and emission levels. In

future, we will use common rail technology for our diesel

engines. Capacity for automatic gearboxes will be adapted

to meet the rising demand.

In addition, cross-product investments of €7.1 billion will

be made over the next three years. Due to our challenging

quality and cost targets, manufacturing the new products

will require adjustments at the press shops, painting and

assembly facilities. Apart from production, we will invest

mainly in the areas of development, quality assurance,

genuine parts supply and information technology.

Planning also includes the construction of the new plants

in Russia and India. It will thus be possible to supply the

growing markets from local production.

Our aim is to finance investments within the

Automotive Division using internally generated funds. For

the planning period, we forecast cash flows from operating

activities of €37.3 billion. The funds generated will thus

exceed investment requirements for the Automotive

Division by €8.4 billion and continue to improve the

financial situation.

The joint venture companies in China are not

consolidated and therefore not included in the figures

given above. They will invest a total of €2.1 billion in the

period 2008 to 2010, to be financed using the joint venture

companies’ own funds.


>


Investments in the amount of €21.4 billion are planned in

the Financial Services Division for the period 2008 to

2010, with investments in leasing and rental assets (net of

disposals) accounting for €9.7 billion, and the increase in

receivables from leasing, customer and dealer financing

accounting for €11.4 billion. As is common in the industry,

the planned cash flows from operating activities of €8.6

billion will not be sufficient to finance these investments in

full. The additional capital requirement of €12.8 billion

will be financed mainly by debt issuance programs in the

money and capital markets and by customer deposits from

the direct banking business.

TARGETS OF VALUE-BASED MANAGEMENT

Based on long-term interest rates derived from the capital

market and the target capital structure (fair value of equity

to debt = 2:1), the minimum required rate of return on

invested assets defined for the Automotive Division

remains unchanged at 9%.

Having achieved our target of generating at least the

cost of capital and exceeded the minimum required rate of

return of 9% in 2007, we are aiming for a return on

investment of more than 10% over the medium term

based on current planning.

SUMMARY OF EXPECTED DEVELOPMENTS

Thanks to optimized cost structures and improved

processes, we were able to further increase the

Volkswagen Group’s competitiveness and earnings

power in 2007. We will systematically drive forward this

development in 2008. Because we are adding new products

to our model range and moving into new markets, we

believe that we will exceed the previous year’s key

performance indicators in 2008.

This report contains forward-looking statements on the business development of

the Volkswagen Group. These statements are based on assumptions relating to

the development of the economic and legal environment in individual countries

and economic regions, and in particular for the automotive industry, which we

have made on the basis of the information available to us and which we consider

to be realistic at the time of going to press. The estimates given entail a degree of

risk, and the actual developments may differ from those forecast.

Consequently, any unexpected fall in demand or economic stagnation in our key

sales markets, such as Western Europe (and especially Germany) or in the USA,

Brazil, China, or Russia will have a corresponding impact on the development of

our business. The same applies in the event of a significant shift in current

exchange rates relative to the US dollar, sterling, yen, Brazilian real, Chinese

renminbi and Czech koruna. In addition, expected business development may

vary if this report’s assessments of value-enhancing factors and risks develop in a

way other than we are currently expecting.

176

PROSPECTS FOR 2008

Global economic growth in 2008 is likely to be lower than

in the previous year. Global automotive markets will also

expand at a slower pace compared with 2007. We expect

growth to be slowed primarily by further rises in the price

of energy and commodities, particularly oil, as well as the

current CO2 debate. The repercussions of the crisis in the

US property market will also impact negatively. We expect

trends in the most important automotive markets to vary

from region to region, with markets in Asia, particularly in

China and India, expanding at the previous year’s strong

rates. Growth in South American markets will slow. The

number of new registrations in Western Europe is likely to

be lower year-on-year, while the Eastern European

markets may record sharp increases again. We expect the

situation in the North American market to remain difficult.

Its diverse range of brands gives the Volkswagen Group

a critical competitive advantage. In 2008, almost all

brands will again present attractive new models, enabling

us to selectively complement the Group’s product portfolio

and move into further market segments. We therefore

expect deliveries to customers to exceed the record set in

2007, with sales figures rising in the Asia-Pacific and

Central and Eastern Europe regions in particular.

As a result of the expected increase in unit sales, the

Volkswagen Group's sales revenue in 2008 will be higher

year-on-year. The further optimization of our processes

and continued systematic cost discipline will also have a

positive impact on earnings development. As a result of

upfront expenditures on new products, powertrains and

locations, the ratio of investments in property, plant and

equipment to sales revenue (capex) will be at a competitive

level of around 6%.

Overall, we expect the Volkswagen Group’s 2008

operating profit to exceed the 2007 level.

We also anticipate a positive net cash flow, which will

further improve the Automotive Division’s liquidity

situation.


The Board of Management

Martin Winterkorn Francisco Javier Garcia Sanz Jochem Heizmann

Horst Neumann Hans Dieter Pötsch

177

DECLARATION BY THE BOARD OF MANAGEMENT OF VOLKSWAGEN AG

The Board of Management of Volkswagen AG is

responsible for preparing the consolidated financial

statements and the Group management report. Reporting

is governed by International Financial Reporting

Standards (IFRSs) as adopted by the EU and the Interpre-

tations of the International Financial Reporting Inter-

pretations Committee (IFRIC). The Group management

report was prepared in compliance with the provisions of

the German Commercial Code (HGB). Volkswagen AG is

required by section 315a of the HGB to prepare its

consolidated financial statements in accordance with the

standards issued by the International Accounting

Standards Board (IASB).

The accuracy of the consolidated financial statements

and of the Group management report is safeguarded by

internal control systems, the implementation of uniform

Group-wide directives and by employee training and

continuing education measures. Compliance with legal

requirements and internal Group directives, and the

reliability and proper functioning of the control systems,

are continuously reviewed across the Group.

The early-warning function stipulated by law is imple-

mented by a Group-wide risk management system that

enables the Board of Management to identify potential

risks at an early stage and to initiate appropriate

countermeasures where necessary.

In accordance with the resolution adopted by the

Annual General Meeting, the independent auditors

PricewaterhouseCoopers Aktiengesellschaft Wirtschafts-

prüfungsgesellschaft, Hanover, have audited the

consolidated financial statements and the Group

management report, and have issued their unqualified

auditors' report reproduced following the notes to the

financial statements.

The consolidated financial statements, the Group

management report, the audit report and the measures to

be taken by the Board of Management to ensure early

identification of going concern risks have been reviewed in

detail by the Supervisory Board Audit Committee and by

the Supervisory Board of Volkswagen AG in the presence of

the auditors. The result of this review is presented in the

report of the Supervisory Board.

Financial Statements 2007

180 Consolidated Financial Statements of the Volkswagen Group

184 Notes to the Consolidated Financial Statements of the Volkswagen Group

261 Responsibility Statement

262 Auditors’ Report

264 Annual Financial Statements of Volkswagen AG

266 Notes to the Annual Financial Statements of Volkswagen AG

293 Responsibility Statement

294 Auditors’ Report

180

Datei: 05_Financial statements_01.03.08.doc; Gespeichert von df60pec am 01.03.2008 3:11

€ million Note 2007 2006

Sales revenue 1 108,897 104,875

Cost of sales 2 92,603 91,020

Gross profit + 16,294 + 13,855

Distribution expenses 9,274 9,180

Administrative expenses 2,453 2,312

Other operating income 3 5,994 4,714

Other operating expenses 4 4,410 5,068

Operating profit + 6,151 + 2,009

Share of profits and losses of equity-accounted investments 5 + 734 + 373

Finance costs 6 1,647 1,586

Other financial result 7 + 1,305 + 997

Financial result + 392 – 216

Profit before tax from continuing operations + 6,543 + 1,793

Income tax income/expense 8 2,421 – 162

current 2,744 212

deferred – 323 – 374

Profit from continuing operations + 4,122 + 1,955

Profit from discontinued operations – + 795

Profit after tax + 4,122 + 2,750

Minority interests + 2 + 1

Profit attributable to shareholders of Volkswagen AG + 4,120 2,749

Basic earnings per ordinary share in € 9 10.43 7.07

of which from: continuing operations 9 10.43 5.03

of which from: discontinued operations 9 – 2.04

Basic earnings per preferred share in € 9 10.49 7.13



Diluted earnings per ordinary share in € 9 10.34 7.04



Diluted earnings per preferred share in € 9 10.40 7.10



Income Statement of the Volkswagen Group for the Period January 1 to December 31, 2007

DIVISIONS COR PORATE GOVERNANC E M ANAGEMENT R EPORT F I NANC IAL STATEMENTS 2007 ADDITIONAL I N FORM ATION 181

> Consolidated Financial Statements Notes to the Consolidated Financial Statements Responsibility Statement Auditors’ Report Annual Financial Statements Notes to the Annual Financial Statements Responsibility Statement Auditors’ Report


Balance Sheet of the Volkswagen Group as of December 31, 2007

€ million Note Dec. 31, 2007 Dec. 31, 2006

Assets

Noncurrent assets

Intangible assets 10 6,830 7,193

Property, plant and equipment 11 19,338 20,340

Leasing and rental assets 12 8,179 7,886

Investment property 12 152 153

Equity-accounted investments 13 7,795 6,876

Other equity investments 13 548 410

Financial services receivables 14 27,522 26,450

Other receivables and financial assets 15 2,416 1,998

Noncurrent tax receivables 16 952 1,030

Deferred tax assets 16 3,109 3,038

76,841 75,374

Current assets

Inventories 17 14,031 12,463

Trade receivables 18 5,691 5,049

Financial services receivables 14 24,914 23,426

Other receivables and financial assets 15 6,653 5,572

Current tax receivables 16 500 261

Marketable securities 19 6,615 5,091

Cash and cash equivalents 20 10,112 9,367

68,516 61,229

Total assets 145,357 136,603


Equity 21

Subscribed capital 1,015 1,004

Capital reserves 5,142 4,942

Retained earnings 25,718 20,958

Equity attributable to shareholders of Volkswagen AG 31,875 26,904

Minority interests 63 55

31,938 26,959

Noncurrent liabilities

Noncurrent financial liabilities 22 29,315 28,734

Other noncurrent liabilities 23 2,245 1,735

Deferred tax liabilities 24 2,637 2,154

Provisions for pensions 25 12,603 13,854

Provisions for taxes 24 2,275 2,586

Other noncurrent provisions 26 8,276 7,096

57,351 56,159

Current liabilities

Current financial liabilities 22 28,677 30,023

Trade payables 27 9,099 8,190

Current tax payables 24 98 34

Other current liabilities 22 7,084 6,333

Provisions for taxes 24 1,828 –

Other current provisions 26 9,282 8,905

56,068 53,485

Total equity and liabilities 145,357 136,603

182


€ million 2007 2006

Actuarial gains 1,427 318

Available-for-sale financial instruments (securities):

Fair value changes taken directly to equity 123 225

Transferred to profit or loss – 498 – 140

Cash flow hedges:

Fair value changes taken directly to equity 1,572 1,108

Transferred to profit or loss – 577 – 25

Foreign exchange differences – 228 – 250

Deferred taxes – 740 – 580

Share of profits and losses of equity-accounted investments

recognized directly in equity, after tax 47 –

Income and expense recognized directly in equity 1,126 656

Profit after tax attributable to shareholders of Volkswagen AG 4,120 2,749

Total recognized income and expense for the period 5,246 3,405

Explanatory notes on equity are presented in note 21.

Statement of Recognized Income and Expense of the Volkswagen Group for the Period January 1 to December 31, 2007


> Consolidated Financial Statements Notes to the Consolidated Financial Statements Responsibility Statement Auditors’ Report Annual Financial Statements Notes to the Annual Financial Statements Responsibility Statement Auditors’ Report


€ million 2007 2006

Cash and cash equivalents at beginning of period 9,367 7,963

Profit before tax from continuing operations 6,543 1,793

Income taxes paid – 1,172 – 888

Depreciation and amortization expense* 5,435 5,932

Amortization of capitalized development costs 1,843 1,826

Impairment losses on equity investments* 180 35

Depreciation of leasing and rental assets and investment property* 1,780 1,605

Change in provisions 1,657 3,395

Gain/Loss on disposal of noncurrent assets 32 – 324

Share of profit or loss of equity-accounted investments – 71 – 206

Other noncash income/expense – 11 13

Change in inventories – 1,856 – 147

Change in receivables (excluding financial services) – 942 736

Change in liabilities (excluding financial liabilities) 2,244 700

Cash flows from operating activities 15,662 14,470

Acquisition of property, plant and equipment, and intangible assets – 4,638 – 3,728

Additions to capitalized development costs – 1,446 – 1.478

Acquisition of subsidiaries and other equity investments – 1.275 – 2.720

Disposal of equity investments 14 1.581

Issuance of bonds – 7 – 19

Change in leasing and rental assets and investment property – 2.763 – 2.528

Change in financial services receivables – 3.588 – 3.563

Proceeds from disposal of noncurrent assets (excluding leasing and rental assets and investment property) 206 544

Change in investments in securities – 1.742 – 987

Investing activities – 15.239 – 12.898

Capital contributions 211 340

Dividends paid – 497 – 451

Other changes – 11 – 23

Proceeds from issue of bonds 9.516 7.955

Repayment of bonds – 8.484 – 8.401

Change in other financial liabilities 93 229

Finance lease payments – 40 – 17

Change in loans – 610 254

Cash flows from financing activities 178 – 114

Changes in cash and cash equivalents due to changes in the consolidated Group structure 37 5

Effect of exchange rate changes on cash and cash equivalents – 91 – 59

Net change in cash and cash equivalents 547 1.404

Cash and cash equivalents at end of period 9.914 9.367

Cash and cash equivalents 9.914 9.367

Securities and loans 9.178 7.097

Gross liquidity 19.092 16.464

Total third-party borrowings – 57.992 – 58.757

Net liquidity – 38.900 – 42.293

* Offset with impairment reversals.

Explanatory notes on the cash flow statement are presented in note 28.

Cash Flow Statement of the Volkswagen Group for the Period January 1 to December 31, 2007

184


Basis of presentation

Volkswagen AG is domiciled in Wolfsburg and entered in the commercial register at the

Braunschweig Local Court under no. HRB 100484. The fiscal year corresponds to the calendar

year.

In accordance with Regulation No. 1606/2002 of the European Parliament and of the

Council, Volkswagen AG has prepared its consolidated financial statements for 2007 in

compliance with the International Financial Reporting Standards (IFRSs) as adopted by the

European Union. We have complied with all the IFRSs adopted by the EU and required to be

applied for periods beginning on or after January 1, 2007. In addition, we have complied with

all the provisions of German commercial law that we are also required to apply, as well as with

the German Corporate Governance Code.

The consolidated financial statements were prepared in euros. Unless otherwise stated, all

amounts are given in millions of euros (€ million).

The income statement was prepared using the internationally accepted cost of sales method.

Preparation of the consolidated financial statements in accordance with the above-

mentioned standards requires management to make estimates that affect the reported amounts

of certain items in the consolidated balance sheet and in the consolidated income statement, as

well as the related disclosure of contingent assets and liabilities. The consolidated financial

statements give a true and fair view of the net assets, financial position and results of operations

as well as the cash flows of the Volkswagen Group.

Effects of new and amended IFRSs

Volkswagen AG applied IFRS 7 and the related amendment to IAS 1 for the first time in fiscal

year 2007. IFRS 7 contains additional disclosure requirements for the Group’s financial assets

and liabilities. IAS 1 requires additional disclosures on the Group’s capital management. The

newly applicable provisions do not affect the classification or measurement of financial

instruments.

The following interpretations were also required to be applied for the first time in fiscal year

2007:

> IFRIC 7 Applying the Restatement Approach under IAS 29 Financial Reporting in

Hyperinflationary Economies

> IFRIC 8 Scope of IFRS 2

> IFRIC 9 Reassessment of Embedded Derivatives and

> IFRIC 10 Interim Financial Reporting and Impairment

The initial application of the interpretations had no effect or no material effect on the

presentation of the consolidated financial statements.

Notes to the Consolidated Financial Statements of the Volkswagen Group for the Fiscal Year ended December 31, 2007


>

Consolidated Financial Statements Notes to the Consolidated Financial Statements Responsibility Statement Auditors’ Report Annual Financial Statements Notes to the Annual Financial Statements Responsibility Statement Auditors’ Report


New and amended IFRSs not applied

In its 2007 consolidated financial statements, Volkswagen AG did not apply the following

accounting standards or interpretations that have already been adopted by the IASB but were

not required to be applied for fiscal year 2007.

Standard/Interpretation* Effective date Adopted by the

EU*

Expected effects

IFRS 8 Operating Segments Jan. 1, 2009 Yes Segment reporting

IAS 1 Presentation of Financial Statements Jan. 1, 2009 No

Reclassification of

components of the

financial

statements

IAS 23 Borrowing Costs Jan. 1, 2009 No

Increase in carrying

amount of

qualifying assets

IFRIC 11 IFRS 2: Group and Treasury Share Transactions Mar. 1, 2007 Yes None

IFRIC 12 Service Concession Arrangements Jan. 1, 2008 No None

IFRIC 13 Customer Loyalty Programmes July 1, 2008 No None

IFRIC 14 The Limit on a Defined Benefit Asset, Minimum Funding

Requirements and their Interaction

Jan. 1, 2008 No Not significant

* On December 31, 2007.

Basis of consolidation

In addition to Volkswagen AG, the consolidated financial statements comprise all significant

companies at which Volkswagen AG is able, directly or indirectly, to govern the financial and

operating policies in such a way that they can obtain benefits from the activities of these

companies (subsidiaries). The subsidiaries also comprise investment funds and other special

purpose entities whose net assets are attributable to the Group under the principle of substance

over form. Consolidation of subsidiaries begins at the first date on which control exists, and

ends when such control no longer exists.

186


Subsidiaries whose business is dormant or of low volume and that are insignificant for the

presentation of a true and fair view of the net assets, financial position and results of operations

as well as the cash flows of the Volkswagen Group are not consolidated. However, they are

carried in the consolidated financial statements at the lower of cost or fair value since no active

market exists for those companies and fair values cannot be reliably ascertained without undue

cost or effort. The aggregate equity of these subsidiaries amounts to 0.9% (previous year: 1.2%)

of Group equity. The aggregate profit after tax of these companies amounts to 0.3% (previous

year: 0.4%) of the profit after tax of the Volkswagen Group.

Significant companies where Volkswagen AG is able, directly or indirectly, to significantly

influence financial and operating policy decisions (associates), or directly or indirectly shares

control (joint ventures), are accounted for using the equity method. Joint ventures also include

companies in which the Volkswagen Group holds the majority of voting rights, but whose

articles of association or partnership agreements stipulate that important decisions may only be

resolved unanimously. Insignificant associates and joint ventures are generally carried at the

lower of cost or fair value.

The composition of the Volkswagen Group is shown in the following table:

2007 2006

Volkswagen AG and consolidated subsidiaries

Germany 42 39

International 133 123

Subsidiaries carried at cost

Germany 63 64

International 77 72

Associates and joint ventures

Germany 24 29

International 45 51

384 378


>



INVESTMENTS IN ASSOCIATES

Volkswagen AG held 37.4% (previous year: 34%) of the voting rights and 20.6% (previous year:

18.7%) of the subscribed capital of Scania AB, Södertälje, Sweden, at the balance sheet date.

The market value of this interest was €2,893 million at December 31, 2007 (previous year:

€2,057 million).

29.9% (previous year: 24.8%) of the ordinary shares and 28.7% (previous year: 23.8%) of

the subscribed capital of MAN AG were attributable to the Group at the balance sheet date. The

market value of the Group’s interest in MAN AG was €4,797 million at the balance sheet date

(previous year: €2,397 million).

The following carrying amounts are attributable to the Volkswagen Group from its interest in

the associates Scania and MAN (previous year also including YANASE Audi Sales Company):

€ million 2007 2006

Noncurrent assets 3,147 2,657

Current assets 3,480 2,818

Noncurrent liabilities 1,359 1,764

Current liabilities 3,242 2,274

Revenues 6,327 2,350

Profit of the period 540 174

INTERESTS IN JOINT VENTURES

The following carrying amounts are attributable to the Volkswagen Group from its proportionate

interest in joint ventures:

€ million 2007 2006

Noncurrent assets 7,551 7,852

Current assets 6,528 5,496

Noncurrent liabilities 4,326 4,712

Current liabilities 6,861 5,664

Income 5,869 4,945

Expenses 5,437 4,731

188


FULLY CONSOLIDATED SUBSIDIARIES

Five foreign companies that were newly formed in fiscal year 2007 and nine foreign companies

that had not been consolidated in 2006 as well as four German companies were initially

consolidated in fiscal year 2007. The number of consolidated subsidiaries was also reduced by

the merger of one German company and four foreign companies.

The sale of the Europcar group in fiscal year 2006 resulted in income from discontinued

operations of €795 million.

The list of all shareholdings can be downloaded from the electronic companies register at

www.unternehmensregister.de and from www.volkswagenag.com/ir under the heading

“Mandatory Publications” and the menu item “Annual Reports”.

The following consolidated German subsidiaries with the legal form of a corporation or

partnership meet the criteria set out in section 264(3) or section 264b of the Handelsgesetzbuch

(HGB – German Commercial Code) and have exercised the option not to publish annual

financial statements:

> Audi Vertriebsbetreuungsgesellschaft mbH, Ingolstadt

> Auto 5000 GmbH, Wolfsburg

> Automobilmanufaktur Dresden GmbH, Dresden

> Autostadt GmbH, Wolfsburg

> AutoVision GmbH, Wolfsburg

> Bugatti Engineering GmbH, Wolfsburg

> quattro GmbH, Neckarsulm

> Volim Volkswagen Immobilien Vermietgesellschaft für VW-/Audi-Händlerbetriebe mbH,

Braunschweig

> Volkswagen Business Services GmbH, Braunschweig

> Volkswagen Gebrauchtfahrzeughandels und Service GmbH, Langenhagen

> Volkswagen Individual GmbH, Wolfsburg

> VOLKSWAGEN Retail GmbH, Wolfsburg

> Volkswagen Sachsen GmbH, Zwickau

> Volkswagen Sachsen Immobilienverwaltungs GmbH, Zwickau

> Volkswagen Zubehör GmbH, Dreieich

> Kommanditgesellschaft "MTH" Motor-Technik-Handelsgesellschaft m.b.H. & Co., Hamburg

> Raffay GmbH & Co. KG, Hamburg

> Volkswagen Logistics GmbH & Co. OHG, Wolfsburg

> Volkswagen Original Teile Logistik GmbH & Co. KG, Baunatal

> VW Wohnungs GmbH & Co. KG, Wolfsburg


>



Consolidation methods

The assets and liabilities of the German and foreign companies included in the consolidated

financial statements are recognized in accordance with the uniform accounting policies used

within the Volkswagen Group. In the case of companies accounted for using the equity method,

the same accounting policies are applied to determine the proportionate equity, based on the

most recent audited annual financial statements of each company.

In the case of subsidiaries consolidated for the first time, assets and liabilities are measured

at their fair value at the date of acquisition. Their carrying amounts are adjusted in subsequent

years. Goodwill arises when the purchase price of the investment exceeds the fair value of

identifiable net assets. Goodwill is tested for impairment once a year to determine whether its

carrying amount is recoverable. If the carrying amount of goodwill is higher than the

recoverable amount, an impairment loss must be recognized. If this is not the case, there is no

change in the carrying amount of goodwill compared with the previous year. If the purchase

price of the investment is less than the identifiable net assets, the difference is recognized in the

income statement in the year of acquisition. Goodwill is accounted for at the subsidiaries in the

functional currency of those subsidiaries.

Receivables and liabilities, and expenses and income, between consolidated companies are

eliminated. Intercompany profits or losses are eliminated in Group inventories and noncurrent

assets. Deferred taxes are recognized for consolidation adjustments recognized in the income

statement, with deferred tax assets and liabilities offset where taxes are levied by the same tax

authority and relate to the same tax period.

The consolidation methods and accounting policies applied in the previous year were

retained, with the exception of the changes due to the new or amended Standards.

Currency translation

Transactions in foreign currency are translated in the single-entity financial statements of

Volkswagen AG and its consolidated subsidiaries at the rates prevailing at the transaction date.

Foreign currency monetary items are recorded in the balance sheet using the middle rate on the

balance sheet date. Foreign exchange gains and losses are recognized in the income statement.

The financial statements of foreign companies are translated into euros using the functional

currency concept. Asset and liability items are translated at the closing rate. With the exception

of income and expenses recognized directly in equity, equity is translated at historical rates. The

resulting foreign exchange differences are taken directly to equity until disposal of the

subsidiary concerned, and are presented as a separate item in equity.

190


Income statement items are translated into euros at weighted average rates using the modified

closing rate method. The rates applied are presented in the following table:

Balance sheet

Middle rate on December 31,

Income statement

Average rate

€1 = 2007 2006 2007 2006

Argentina ARS 4.63638 4.04253 4.27103 3.86003

Australia AUD 1.67570 1.66910 1.63557 1.66668

Brazil BRL 2.61445 2.81522 2.66318 2.73362

Canada CAD 1.44490 1.52810 1.46895 1.42422

Czech Republic CZK 26.62800 27.48500 27.75824 28.33810

India INR 57.85353 58.22720 56.39206 56.79643

Japan JPY 164.93000 156.93000 161.24064 146.06235

Mexico MXN 16.07430 14.26044 14.97495 13.68452

People's Republic of

China CNY 10.75240 10.27930 10.41860 10.00815

Poland PLN 3.59350 3.83100 3.78314 3.89512

Republic of Korea KRW 1,377.96000 1,224.81000 1,273.33290 1,198.14796

Russia RUB 35.98600 34.68000 35.02037 34.11236

Slovak Republic SKK 33.58300 34.43500 33.77502 37.21442

South Africa ZAR 10.02980 9.21240 9.66135 8.52228

Sweden SEK 9.44150 9.04040 9.25214 9.25331

United Kingdom GBP 0.73335 0.67150 0.68455 0.68182

USA USD 1.47210 1.31700 1.37064 1.25567

Accounting policies

INTANGIBLE ASSETS

Purchased intangible assets are recognized at cost and amortized over their useful life using the

straight-line method. This relates in particular to software, which is amortized over three years.

In accordance with IAS 38, research costs are recognized as expenses when incurred.

Development costs for future series products and other internally generated intangible assets

are capitalized at cost, provided manufacture of the products is likely to bring the Volkswagen

Group an economic benefit. If the criteria for recognition as assets are not met, the expenses are

recognized in the income statement in the year in which they are incurred.

Capitalized development costs include all direct and indirect costs that are directly

attributable to the development process. Borrowing costs are not capitalized. The costs are

amortized using the straight-line method from the start of production over the expected life

cycle of the models or powertrains developed – generally between five and ten years.

Amortization recognized during the year is allocated to the relevant functions in the income

statement.


>



Goodwill and intangible assets with indefinite useful lives are tested for impairment at least

once a year; capitalized development costs and other intangible assets with finite useful lives are

tested for impairment only if there are specific indications that they may be impaired. The

Volkswagen Group generally applies the value in use of the relevant cash-generating unit to

determine the recoverable amount of goodwill and indefinite-lived intangible assets. This is

based on management's current planning. The planning period extends to a horizon of five

years, with reasonable assumptions about future development being made for the subsequent

years. The planning assumptions are adapted to reflect the current state of knowledge. They

include reasonable assumptions on macroeconomic trends and historical developments.

Estimation of cash flows is generally based on the expected growth trends for the automobile

markets concerned. We apply country-specific discount factors of at least 9% when determining

value in use for the purpose of impairment testing of intangible assets.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment is carried at cost less depreciation and – where necessary –

write-downs for impairment. Investment grants are generally deducted from cost. Cost is

determined on the basis of the direct and indirect costs that are directly attributable. Borrowing

costs are recorded as current expenses. Property, plant and equipment is depreciated using the

straight-line method over its estimated useful life. The useful lives of items of property, plant

and equipment are reviewed at each balance sheet date and adjusted if required.

Depreciation is based mainly on the following useful lives:

Useful life

Buildings 25 to 50 years

Site improvements 10 to 18 years

Technical equipment and machinery 6 to 12 years

Other equipment, operating and office equipment, including special tools 3 to 15 years

Impairment losses on property, plant and equipment are recognized in accordance with IAS 36

where the recoverable amount of the asset concerned has fallen below the carrying amount.

Recoverable amount is the higher of value in use and fair value less costs to sell. We apply

country-specific discount factors of at least 9% when determining value in use for the purpose

of impairment testing of property, plant and equipment. If the reasons for impairments

recognized in previous years no longer apply, the impairment losses are reversed accordingly.

Where leased items of property, plant and equipment are used, the criteria for classification

as a finance lease as set out in IAS 17 are met if all material risks and rewards incidental to

ownership have been transferred to the Group company concerned. In such cases, the assets

192


concerned are recognized at cost or at the present value of the minimum lease payments (if

lower) and depreciated using the straight-line method over the asset's useful life, or over the

term of the lease if this is shorter. The payment obligations arising from the future lease

payments are discounted and recorded as a liability in the balance sheet.

Where Group companies are the lessees of assets under operating leases, i.e. if not all

material risks and rewards incidental to ownership are transferred, lease and rental payments

are recorded directly as expenses in the income statement.

LEASING AND RENTAL ASSETS

Vehicles leased out under operating leases are recognized at cost and depreciated to their

estimated residual value using the straight-line method over the term of the lease.

INVESTMENT PROPERTY

Real estate and buildings held in order to obtain rental income (investment property) are

carried at amortized cost; the useful lives applied to depreciation correspond to those of the

property, plant and equipment used by the Company itself. The fair value of investment property

must be disclosed in the notes if it is carried at amortized cost. Fair value is estimated using an

income capitalization approach.

FINANCIAL INSTRUMENTS

Financial instruments are contracts that give rise to a financial asset of one company and a

financial liability or an equity instrument of another. Regular way purchases or sales of

financial instruments are accounted for at the settlement date – that is, at the date on which the

asset is delivered.

IAS 39 classifies financial assets into the following categories:

> financial assets at fair value through profit or loss;

> held-to-maturity financial assets;

> loans and receivables; and

> available-for-sale financial assets.

Financial liabilities are classified into the following categories:

> financial liabilities at fair value through profit or loss; and

> financial liabilities carried at amortized cost.

We recognize financial instruments at amortized cost or at fair value.

The amortized cost of a financial asset or liability is the amount:

> at which a financial asset or liability is measured at initial recognition;

> minus any principal repayments;

> minus any write-down for impairment or uncollectibility;

> plus or minus the cumulative amortization of any difference between the original amount and

the amount repayable at maturity (premium), amortized using the effective interest method

over the term of the financial asset or liability.


>



In the case of current receivables and liabilities, amortized cost generally corresponds to the

principal or repayment amount.

Fair value generally corresponds to the market or quoted market price. If no active market

exists, fair value is determined using valuation techniques, such as by discounting the future

cash flows at the market interest rate, or by using recognized option pricing models, and

verified by confirmations from the banks that handle the transactions.

The fair value option is not used in the Volkswagen Group.

ORIGINATED FINANCIAL INSTRUMENTS

Loans, receivables and liabilities, as well as held-to-maturity investments, are measured at

amortized cost, unless hedged. Specifically, these relate to:

> receivables from financing business;

> trade receivables and payables;

> other receivables and financial assets and liabilities; and

> financial liabilities.

Available-for-sale financial assets (securities) are carried at fair value. Changes in fair value are

recognized directly in equity, net of deferred taxes.

Shares in unconsolidated subsidiaries and other equity investments that are not accounted

for using the equity method are also classified as available-for-sale financial assets. However,

they are generally carried at cost, since no active market exists for those companies and fair

values cannot be reliably ascertained without undue cost or effort. Fair values are recognized if

there are indications that fair value is lower than cost.

An impairment loss must be recognized if there is objective evidence of impairment, such as

default over a certain period, initiation of enforcement measures, imminent insolvency or

overindebtedness, applying for or opening bankruptcy proceedings. Impairment losses are

recognized in profit or loss in the case of financial instruments recognized at amortized cost.

A significant or prolonged decline in fair value is objective evidence of the impairment of

available-for-sale equity instruments. The cumulative loss is withdrawn from the reserve and

recognized in profit and loss. Corresponding reversals of impairment losses are taken directly

to equity.

DERIVATIVES AND HEDGE ACCOUNING

Volkswagen Group companies use derivatives to hedge balance sheet items and future cash

flows (hedged items). Derivatives, such as swaps, forward transactions and options, are used as

the primary hedging instruments. The criteria for the application of hedge accounting are that

the hedging relationship between the hedged item and the hedging instrument is clearly

documented and that the hedge is highly effective.

The accounting treatment of changes in the fair value of hedging instruments depends on

the nature of the hedging relationship. In the case of hedges against the risk of change in the

carrying amount of balance sheet items (fair value hedges), both the hedging instrument and

the hedged risk portion of the hedged item are measured at fair value. Gains or losses from

194


remeasurement are recognized in profit or loss. In the case of hedges of future cash flows (cash

flow hedges), the hedging instruments are also measured at fair value. Gains or losses from

remeasurement of the effective portion of the derivative are initially recognized in the reserve

for cash flow hedges directly in equity, and are only recognized in the income statement when

the hedged item is recognized in profit or loss; the ineffective portion of a hedge is recognized

immediately in profit or loss.

Derivatives used by the Volkswagen Group for financial management purposes to hedge

against interest rate, foreign currency, or price risks, but that do not meet the strict criteria of

IAS 39, are classified as financial assets or liabilities at fair value through profit or loss. External

hedges of intra-Group hedged items that are subsequently eliminated in the consolidated

financial statements are also assigned to this category.

RECEIVABLES FROM FINANCE LEASES

Where a Group company is the lessor – generally of vehicles – a receivable in the amount of the

net investment in the lease is recognized in the case of finance leases, in other words where

substantially all the risks and rewards incidental to ownership are transferred to the lessee.

OTHER RECEIVABLES AND FINANCIAL ASSETS

Other receivables and financial assets (except for derivatives) are recognized at amortized cost.

Appropriate valuation allowances take account of identifiable specific risks and general credit

risks.

DEFERRED TAXES

Deferred tax assets are generally recognized for taxable temporary differences between the tax

base of assets and their carrying amounts in the consolidated balance sheet, as well as on tax

loss carryforwards and tax credits provided it is probable that they can be used in future periods.

Deferred tax liabilities are generally recognized for all taxable temporary differences between

the tax base of liabilities and their carrying amounts in the consolidated balance sheet.

Deferred tax liabilities and assets are recognized in the amount of the expected tax liability

or tax benefit, as appropriate, in subsequent fiscal years, based on the expected enacted tax rate

at the time of realization. The tax consequences of dividend payments are not taken into account

until the resolution on appropriation of earnings available for distribution has been adopted.

Deferred tax assets that are unlikely to be realized within a clearly predictable period are

reduced by valuation allowances.

Deferred tax assets and deferred tax liabilities are offset where taxes are levied by the same

taxation authority and relate to the same tax period.

INVENTORIES

Raw materials, consumables and supplies, merchandise, work in progress and self-produced

finished goods reported in inventories are carried at cost. Cost is determined on the basis of the

direct and indirect costs that are directly attributable. Borrowing costs are not capitalized. The

measurement of same or similar inventories is based on the weighted average cost method.

Valuation allowances are recognized where the carrying amounts are no longer recoverable at

the balance sheet date due to lower selling prices.


>



NONCURRENT ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS

Under IFRS 5, noncurrent assets or groups of assets and liabilities (disposal groups) are

classified as held for sale if their carrying amounts will be recovered principally through a sale

transaction rather than through continuing use. Such assets are carried at the lower of their

carrying amount and fair value less costs to sell, and are presented separately in current assets

and liabilities in the balance sheet.

Discontinued operations are components of an entity that have either been disposed of or

are classified as held for sale. The assets and liabilities of operations that are held for sale

represent disposal groups that must be measured and reported using the same principles as

noncurrent assets held for sale. The income and expenses from discontinued operations are

presented in the income statement as "profit or loss from discontinued operations" below the

profit or loss from continuing operations. Corresponding disposal gains or losses are contained

in the profit or loss from discontinued operations. The prior-year figures in the income statement

are restated accordingly.

PENSION PROVISIONS

The actuarial valuation of pension provisions is based on the projected unit credit method in

respect of defined benefit plans in accordance with IAS 19. The valuation is based not only on

pension payments and vested entitlements known at the balance sheet date, but also reflects

future salary and pension trends. Actuarial gains and losses are recognized directly in equity,

net of deferred taxes.

PROVISIONS FOR TAXES

Tax provisions contain obligations resulting from current taxes. Deferred taxes are presented in

separate items of the balance sheet and income statement.

OTHER PROVISIONS

In accordance with IAS 37, provisions are recognized where a present obligation exists to third

parties as a result of a past event; where a future outflow of resources is probable; and where a

reliable estimate of that outflow can be made.

Provisions not resulting in an outflow of resources in the year immediately following are

recognized at their settlement value discounted to the balance sheet date. Discounting is based

on market interest rates. A discount rate of 5.2% was used in Germany. The settlement value

also reflects cost increases expected at the balance sheet date.

Provisions are not offset against claims for reimbursement.

As part of the Financial Services Division’s newly launched insurance business, we

recognize insurance contracts in accordance with IFRS 4. Reinsurance acceptances are

accounted for on an accrual basis. Estimation techniques based on assumptions about future

changes in claims are used to calculate the claims provision. Minority interests in provisions are

reported under other assets.

196


LIABILITIES

Noncurrent liabilities are recorded at amortized cost in the balance sheet. Differences between

historical cost and the repayment amount are amortized using the effective interest method.

Liabilities to members of partnerships from the provision of capital are carried at the fair

value of the redemption amount at the balance sheet date.

Liabilities under finance leases are carried at the present value of the lease payments.

Current liabilities are recognized at their repayment or settlement value.

REVENUE AND EXPENSE RECOGNITION

Sales revenue, interest and commission income from financial services and other operating

income are recognized only when the relevant service has been rendered or the goods

delivered, that is, when the risk has passed to the customer. Income from assets for which a

Group company has a buy-back obligation is recognized only when the assets have definitively

left the Group. Prior to that time, they are carried as inventories.

Cost of sales includes the costs incurred to generate the sales revenues and the cost of goods

purchased for resale. This item also includes the costs of additions to warranty provisions.

Research and development costs not eligible for capitalization in the period and amortization of

development costs are likewise carried under cost of sales. Reflecting the presentation of

interest and commission income in sales revenue, the interest and commission expenses

attributable to the financial services business are presented in cost of sales.

Distribution expenses include personnel and material costs, and depreciation and

amortization applicable to the distribution function, as well as the costs of shipping,

advertising, sales promotion, market research and customer service. Administrative expenses

include personnel costs and overheads as well as depreciation and amortization applicable to

administrative functions. Government grants are generally deducted from the cost of the

relevant assets. Personnel expenses are recognized in respect of the issue of convertible bonds

to employees conveying the right to purchase shares of Volkswagen AG. Dividend income is

recognized on the date when the dividend is legally approved.


>



ESTIMATES AND ASSUMPTIONS BY MANAGEMENT

Preparation of the consolidated financial statements requires management to make certain

estimates and assumptions that affect the reported amounts of assets and liabilities, and income

and expenses, as well as the related disclosure of contingent assets and liabilities of the

reporting period. Such estimates and assumptions relate primarily to the assessment of the

recoverability of intangible assets, the standard definition throughout the Group of useful lives

of items of property, plant and equipment and of leasing and rental assets, the collectibility of

receivables, and the recognition and measurement of provisions.

The estimates and assumptions are based on underlying assumptions that reflect the

current state of available knowledge. Specifically, the expected future development of business

was based on the circumstances known at the date of preparation of these consolidated

financial statements and a realistic assessment of the future development of the global and

sector-specific environment. Developments in this environment that differ from the

assumptions and that cannot be influenced by management could result in amounts that differ

from the original estimates. If actual developments differ from the expected developments, the

underlying assumptions and, if necessary, the carrying amounts of the assets and liabilities

affected are adjusted.

At the date of preparation of these consolidated financial statements, the underlying

assumptions and estimates were not exposed to any material risks. At present, management

does not therefore believe that there will be a requirement in the following fiscal year for any

material adjustment to the carrying amounts of assets and liabilities reported in the

consolidated balance sheet.

Estimates and assumptions by management were based on assumptions that are explained

in the Report on Expected Developments.

198


Segment reporting

BY DIVISION

Automotive Financial Services Consolidation Volkswagen Group

€ million 2007 2006 2007 2006 2007 2006 2007 2006

Sales to third parties 100,171 96,897 8,726 7,978 – – 108,897 104,875

Intersegment sales

revenue 2,357 1,663 1,419 893 – 3,776 – 2,556 – –

Segment sales revenue 102,528 98,560 10,145 8,871 – 3,776 – 2,556 108,897 104,875

Impairment losses* 1,081 1,213 76 15 – – 1,157 1,228

Reversals of impairment

losses* – 30 0 2 – – 0 32

Operating profit 5,909 1,097 957 843 – 715 69 6,151 2,009

Share of profits and

losses of equity-

accounted investments 580 240 154 133 – – 734 373

Cash flows from

operating activities 13,897 12,253 1,987 2,725 – 222 – 508 15,662 14,470

Segment assets 73,008 68,459 66,140 61,947 – 6,839 – 5,575 132,309 124,831

Equity-accounted

investments 6,313 5,434 1,482 1,442 – – 7,795 6,876

Segment liabilities 55,046 56,052 59,255 56,165 – 7,721 – 7,346 106,580 104,871

Investments in property,

plant and equipment

and other intangible

assets 4,559 3,644 83 84 – 4 – 4,638 3,728

Capitalized development

costs 1,446 1,478 – – – – 1,446 1,478

Investments in leasing

and rental assets and

investment property 76 55 5,119 4,789 – – 5,195 4,844

Investing activities 8,818 6,937 6,940 5,786 – 519 175 15,239 12,898

* Intangible assets, property, plant and equipment, leasing and rental assets, investment property and inventories.


>



BY MARKET 2007

€ million

Germany Rest of

Europe

North

America

South

America

Africa Asia/

Oceania

Consoli-

dation

Total

Sales to third parties 26,864 50,839 13,219 8,340 2,103 7,532 – 108,897


plant and equipment,


assets 2,792 1,243 205 296 20 40 42 4,638

Segment assets 77,932 44,048 17,671 8,501 1,095 2,908 – 19,846 132,309

BY MARKET 2006

€ million

Germany Rest of

Europe

North

America

South

America

Africa Asia/

Oceania

Consoli-

dation

Total

Sales to third parties 28,544 46,211 14,611 6,409 2,426 6,674 – 104,875


plant and equipment,


assets 2,132 1,219 218 116 64 20 – 41 3,728

Segment assets 74,208 47,699 19,863 5,692 1,116 2,988 – 26,735 124,831

The internal organizational and management structure and the internal reporting lines to the

Board of Management and the Supervisory Board form the basis for identifying the primary

format of segment reporting within the Volkswagen Group by the two divisions Automotive and

Financial Services. The secondary reporting format is geographically based.

As a matter of principle, business relationships between the companies within the segments

of the Volkswagen Group are transacted at arm's length prices.

200


1 Sales revenue

STRUCTURE OF GROUP SALES REVENUE

€ million 2007 2006

Vehicles 86,159 83,342

Genuine parts 6,512 6,235

Other sales revenue 7,714 7,669

Rental and leasing business 5,311 4,457

Interest and similar income from financial services business 3,201 3,172

108,897 104,875

For segment reporting purposes, the sales revenue of the Group is presented by division and

market.

2 Cost of sales

Cost of sales also includes interest expenses of €2,429 million (previous year: €2,147 million)

attributable to the financial services business. This item includes impairment losses on

intangible assets, property, plant and equipment, and leasing and rental assets. Impairment

losses are based on updated impairment tests and reflect market risks, as well as the increased

external value of the euro.

3 Other operating income

€ million 2007 2006

Income from reversal of valuation allowances on receivables

and other assets 369 265

Income from reversal of provisions and accruals 877 942

Income from foreign currency hedging derivatives 1,390 370

Income from foreign exchange gains 1,093 649

Income from sale of promotional material 177 199

Income from cost allocations 903 864

Income from investment property 56 60

Gains on asset disposals 47 124

Miscellaneous other operating income 1,082 1,241

5,994 4,714

Income Statement Disclosures


>



Foreign exchange gains mainly comprise gains from changes in exchange rates between the

dates of recognition and payment of receivables and liabilities denominated in foreign

currencies, as well as exchange rate gains resulting from measurement at the closing rate.

Foreign exchange losses from these items are included in other operating expenses.

4 Other operating expenses

€ million 2007 2006

Valuation allowances on receivables and other assets 610 595

Losses from foreign currency hedging derivatives 780 582

Foreign exchange losses 1,410 755

Expenses from cost allocations 202 277

Expenses for termination agreements 94 1,801

Miscellaneous other operating expenses 1,314 1,058

4,410 5,068

5 Share of profits and losses of equity-accounted investments

€ million 2007 2006

Share of profits of equity-accounted investments 820 390

of which from: joint ventures (443) (271)

of which from: associates (377) (119)

Share of losses of equity-accounted investments 86 17

of which from: joint ventures (86) (5)

of which from: associates (0) (12)

734 373

The share of profits and losses of equity-accounted investments also includes impairment losses

on investments in joint ventures accounted for using the equity method in the Automotive

Division.

202


6 Finance costs

€ million 2007 2006

Other interest and similar expenses 1,032 864

Interest cost included in lease payments 9 8

Interest expenses 1,041 872

Interest component of additions to pension provisions 579 553

Interest cost on other liabilities 27 161

Interest cost on liabilities 606 714

Finance costs 1,647 1,586

7 Other financial result

€ million 2007 2006

Income from profit and loss transfer agreements 17 13

Cost of loss absorption 16 12

Other income from equity investments 38 29

Other expenses from equity investments 182 100

Income from securities and loans* 505 226

Other interest and similar income 976 666

Gains and losses from fair value remeasurement

and impairment of financial instruments – 49 25

Gains and losses from fair value remeasurement

of ineffective derivatives 45 156

Gains and losses on hedges – 29 – 6

Other financial result 1,305 997

* Including disposal gains/losses.


>



8 Income tax income/expense

COMPONENTS OF TAX INCOME AND EXPENSE

€ million 2007 2006

Current tax expense/income, Germany 1,873 – 458

Current tax expense, abroad 1,000 795

Current tax expense 2,873 337

of which prior period expense/income (148) (– 84)

Income from reversal of tax provisions – 129 – 125

Current income tax expense 2,744 212

Deferred tax expense/income, Germany 104 – 416

Deferred tax income/expense, abroad – 427 42

Deferred tax income – 323 – 374

Income tax income/expense from continuing operations 2,421 – 162

Income tax income/expense from discontinued operations – 30

Income tax income/expense 2,421 – 132

The statutory corporation tax rate in Germany for the 2007 assessment period was 25%. This

resulted in an aggregate tax rate, including trade tax and the solidarity surcharge, of 38.3%.

The Group’s tax burden will fall to 29.5% starting in 2008 as a result of the German business

tax reform. This is mainly due to the reduction in the corporation tax rate from 25% to 15%.

The reduction in the tax rate was already reflected in the calculation of the German companies’

deferred tax assets and liabilities. This resulted in a deferred tax expense of €75 million. The

change in deferred tax assets and liabilities to be recognized directly in equity increased

retained earnings by €58 million.

The local income tax rates applied for companies outside Germany vary between 0% and

42%. In the case of split tax rates, the tax rate applicable to undistributed profits is applied.

204


The realization of tax benefits from tax loss carryforwards from previous years resulted in a

reduction in current income taxes in 2007 by €405 million (previous year: €247 million).

Previously unused tax loss carryforwards amounted to €1,658 million (previous year: €3,104

million). Tax loss carryforwards amounting to €960 million (previous year: €1,598 million) can

be used indefinitely, while €54 million (previous year: €277 million) must be used within the

next ten years. There are additional tax loss carryforwards amounting to €645 million (previous

year: €1,229 million) that can be used within a period of 15 to 20 years. Tax loss carryforwards of

€483 million (previous year: €1,063 million) are estimated not to be usable.

The decrease in tax loss carryforwards estimated not to be usable amounting to €580 million

resulted primarily from the tax position of the US and Brazilian companies.

Deferred taxes are recognized where income from subsidiaries was tax-exempt in the past

due to specific local regulations, but the tax effects on discontinuation of the temporary tax

exemption are foreseeable. Tax benefits amounting to €83 million (previous year: €141 million)

were recognized because of tax credits granted by various countries to compensate for the loss

of tax relief where the amounts involved were unlimited.

No deferred tax assets were recognized for tax credits of €313 million (previous year: €206

million).

Due to the change in the statutory provisions in Germany, a refund claim for corporate

income tax was recognized as a current tax asset for the first time in fiscal year 2006. It was

recognized in the balance sheet at a present value of €951 million. The present value of the

refund claim was €989 million at the balance sheet date.

Deferred tax expenses resulting from changes in tax rates amounted to €76 million (previous

year: deferred tax expenses of €22 million).

€144 million of the deferred taxes recognized in the balance sheet was charged to equity

(previous year: €596 million credited to equity) without being recognized in the income

statement. Recognition of actuarial gains or losses directly in equity in accordance with IAS 19

resulted in a decrease in equity from the recognition of deferred taxes of €610 million in 2007

(previous year: decrease by €116 million). Changes in deferred taxes on reserves for cash flow

hedges decreased equity by €233 million (previous year: decrease by €449 million). The

deferred taxes required to be recognized on the fair value measurement of securities increased

equity by €103 million (previous year: decrease of €15 million).


>



DEFERRED TAXES CLASSIFIED BY BALANCE SHEET ITEM

The following recognized deferred tax assets and liabilities were attributable to recognition and

measurement differences in the individual balance sheet items and to tax loss carryforwards:

Deferred tax assets Deferred tax liabilities

€ million Dec. 31, 2007 Dec. 31, 2006 Dec. 31, 2007 Dec. 31, 2006

Intangible assets 177 220 1,532 2,159

Property, plant and equipment, and

leasing and rental assets 3,958 4,792 2,153 2,641

Noncurrent financial assets 178 189 1 6

Inventories 190 183 448 143

Receivables and other assets

(including Financial Services

Division) 413 575 4,862 5,703

Other current assets 43 17 41 66

Pension provisions 1,039 1,927 5 1

Other provisions 2,490 2,582 123 146

Liabilities 1,507 1,538 1,198 952

Tax loss carryforwards 313 646 0 0

Valuation allowances on deferred

tax assets 0 0 0 0

Gross value 10,308 12,669 10,363 11,817

of which noncurrent (7,134) (9,085) (6,653) (8,215)

Offset 8,229 10,365 8,229 10,365

Consolidation 1,030 734 503 702

Amount recognized 3,109 3,038 2,637 2,154

In accordance with IAS 12, deferred tax assets and liabilities are offset if, and only if, they relate

to income taxes levied by the same taxation authority and relate to the same tax period.

The tax expense from continuing operations of €2,421 million reported for 2007 (previous

year: income of €162 million) was €85 million (previous year: €848 million) lower than the

expected tax expense of €2,506 million that would have resulted from application of a tax rate

applicable to undistributed profits of 38.3% to the profit before tax of the Group.

206


RECONCILATION OF EXPECTED TO EFFECTIVE INCOME TAX

€ million 2007 2006

Profit before tax 6,543 1,793

Expected income tax expense

(tax rate 38.3%; previous year: 38.3%) 2,506 686

Reconciliation:

Effect of different tax rates outside Germany – 456 – 489

Proportion of taxation relating to:

tax-exempt income – 306 – 106

expenses not deductible for tax purposes 365 214

effects of loss carryforwards and tax credits – 287 228

temporary differences for which no deferred taxes were

recognized 486 290

Tax credits – 85 – 1,081

Prior-period current tax expense 148 9

Effect of tax rate changes – 76 22

Other taxation changes 126 65

Effective income tax income/expense

from continuing operations 2,421 – 162

Effective tax rate from continuing operations (%) 37.0 –

9 Earnings per share

Basic earnings per share are calculated by dividing profit attributable to shareholders of

Volkswagen AG by the weighted average number of ordinary and preferred shares outstanding

during the reporting period. Earnings per share are diluted by potential shares. These include

stock options, although these are only dilutive if they result in the issuance of shares at a value

below the average market price of the shares. The fourth, fifth, sixth, seventh and eighth

tranches of the stock option plan were dilutive.

Ordinary Preferred

Quantity 2007 2006 2007 2006

Weighted average number of

shares outstanding – basic 289,099,603 282,525,488 105,238,280 105,238,280

Dilutive potential ordinary shares

from the stock option plan 3,391,442 1,998,986 – –

Weighted average number of

shares outstanding – diluted 292,491,045 284,524,474 105,238,280 105,238,280


>



€ million 2007 2006

Profit after tax 4,122 2,750

Minority interests 2 1

Profit attributable to shareholders of Volkswagen AG 4,120 2,749

Basic earnings attributable to ordinary shares 3,016 1,998

of which from: continuing operations 3,016 1,420

of which from: discontinued operations – 578

Basic earnings attributable to preferred shares 1,104 751

of which from: continuing operations 1,104 534


Diluted earnings attributable to ordinary shares 3,025 2,002

of which from: continuing operations 3,025 1,423


Diluted earnings attributable to preferred shares 1,095 747

of which from: continuing operations 1,095 531


€ 2007 2006

Basic earnings per ordinary share 10.43 7.07

of which from: continuing operations 10.43 5.03

of which from: discontinued operations – 2.04

Basic earnings per preferred share 10.49 7.13



Diluted earnings per ordinary share 10.34 7.04



Diluted earnings per preferred share 10.40 7.10



208


Additional Income Statement Disclosures in Accordance with IFRS 7 (Financial Instruments)

CLASSES OF FINANCIAL INSTRUMENTS

Financial instruments are divided into the following classes at the Volkswagen Group:

> Financial instruments measured at fair value,

> Financial instruments measured at amortized cost and

> Financial instruments not falling within the scope of IFRS 7.

Financial instruments not falling within the scope of IFRS 7 include in particular investments in

associates and joint ventures accounted for using the equity method.

NET GAINS OR LOSSES FROM FINANCIAL INSTRUMENTS BY MEASUREMENT CATEGORY

UNDER IAS 39

€ million 2007 2006

Financial instruments at fair value through profit or loss 342 360

Loans and receivables 2,610 2,486

Available-for-sale financial assets 329 203

Financial liabilities measured at amortized cost – 3,268 – 2,948

13 101

Net gains and losses from financial instruments are composed of interest, fair value

measurement gains and losses on financial instruments, gains and losses on currency

translation, impairment losses and disposal gains/losses. Interest also includes interest income

and expenses from the Financial Services Division’s lending and leasing business. Financial

instruments measured at fair value do not include any dividend income.


>



TOTAL INTEREST INCOME AND EXPENSES OF FINANCIAL INSTRUMENTS NOT MEASURED AT FAIR

VALUE THROUGH PROFIT OR LOSS

€ million 2007 2006

Interest income 3,354 2,962

Interest expenses 3,386 2,974

– 32 – 12

IMPAIRMENT LOSSES ON FINANCIAL ASSETS BY CLASS

€ million 2007 2006

Measured at fair value – –

Measured at amortized cost 818 624

818 624

Impairment losses relate to write-downs of financial assets, such as valuation allowances on

unconsolidated subsidiaries and on receivables. Interest income on impaired financial assets

amounted to €83 million in fiscal year 2007 (previous year: €98 million).

€11 million was recognized in fiscal year 2007 as an expense for fees and commissions from

trustee business (previous year: €8 million).

210


10 Intangible assets

CHANGES IN INTANGIBLE ASSETS

BETWEEN JANUARY 1 AND DECEMBER 31, 2006

€ million

Concessions,

industrial and

similar rights,

and licenses in

such rights and

assets

Goodwill Capitalized

costs for

products under

development

Capitalized

development

costs for

products

currently in use

Other

intangible

assets

Total

Cost

Balance at Jan. 1, 2006 63 238 1,715 9,540 1,283 12,839

Foreign exchange

differences – 2 8 5 0 – 8 3

Changes in consolidated

Group 25 – 51 – – – 136 – 162

Additions 3 – 1,198 280 167 1,648

Transfers 2 – – 1,042 1,042 17 19

Disposals 28 – 4 716 37 785

Balance at Dec. 31, 2006 63 195 1,872 10,146 1,286 13,562

Amortization and

impairment

Balance at Jan. 1, 2006 54 – 86 4,319 712 5,171

Foreign exchange

differences – 2 – – 5 – 6 – 3


Group 25 – – – – 102 – 77

Additions to cumulative

amortization 5 – – 1,363 174 1,542


impairment losses 1 – 31 432 50 514

Transfers 2 – – 1 1 2 4

Disposals 28 – 3 715 36 782

Balance at Dec. 31, 2006 57 – 113 5,405 794 6,369

Carrying amount at

Dec. 31, 2006 6 195 1,759 4,741 492 7,193

Sensitivity analyses have shown that it is unnecessary to recognize impairment losses on

goodwill and indefinite-lived intangible assets, including where realistic variations are applied

to key assumptions.

Balance Sheet Disclosures


>



CHANGES IN INTANGIBLE ASSETS BETWEEN JANUARY 1 AND DECEMBER 31, 2007

€ million

Concessions,

industrial and

similar rights,

and licenses in

such rights and

assets

Goodwill Capitalized

costs for

products under

development

Capitalized

development

costs for

products

currently in use

Other

intangible

assets

Total

Cost

Balance at Jan. 1, 2007 63 195 1,872 10,146 1,286 13,562

Foreign exchange

differences – 3 6 7 – 65 – 12 – 67


Group – 5 – – 2 7

Additions 5 – 1,135 311 193 1,644

Transfers 3 – – 1,042 1,042 22 25

Disposals 1 5 34 964 121 1,125

Balance at Dec. 31, 2007 67 201 1,938 10,470 1,370 14,046

Amortization and

impairment

Balance at Jan. 1, 2007 57 – 113 5,405 794 6,369

Foreign exchange

differences – 2 – – – 37 – 6 – 45


Group – – – – 2 2


amortization 7 – – 1,428 154 1,589


impairment losses – 5 175 240 3 423

Transfers 0 – – 18 18 1 1

Disposals 1 5 41 957 119 1,123

Balance at Dec. 31, 2007 61 – 229 6,097 829 7,216

Carrying amount at

Dec. 31, 2007 6 201 1,709 4,373 541 6,830

Of the total research and development costs incurred in 2007, €1,446 million (previous

year: €1,478 million) met the criteria for capitalization under IFRSs.

The following amounts were recognized as expenses:

€ million 2007 2006

Research and non-capitalized development costs 3,477 2,762

Amortization of development costs 1,843 1,826

Research and development costs recognized in the income statement 5,320 4,588

212


11 Property, plant and equipment

CHANGES IN PROPERTY, PLANT AND EQUIPMENT BETWEEN JANUARY 1 AND DECEMBER 31, 2006

€ million

Land, land

rights and

buildings,

including

buildings on

third-party

land

Technical

equipment

and

machinery

Other

equipment,

operating and

office

equipment

Payments on

account and

assets under

construction

Total

Cost

Balance at Jan. 1, 2006 13,897 24,525 31,120 1,330 70,872

Foreign exchange differences – 38 – 59 – 180 – 11 – 288

Changes in consolidated Group – 61 – 12 – 261 – 15 – 349

Additions 338 585 1,439 1,234 3,596

Transfers 133 397 449 – 997 – 18

Disposals 128 898 1,256 23 2,305

Balance at Dec. 31, 2006 14,141 24,538 31,311 1,518 71,508

Depreciation and impairment

Balance at Jan. 1, 2006 6,820 17,865 23,303 0 47,988

Foreign exchange differences – 32 – 39 – 127 0 – 198

Changes in consolidated Group – 22 – 6 – 192 – – 220

Additions to cumulative depreciation 480 1,814 2,965 – 5,259

Additions to cumulative impairment losses 47 63 353 10 473

Transfers – 4 6 – 3 – 3 – 4

Disposals 69 877 1,153 – 2,099

Reversal of impairment losses – 6 – 25 0 – – 31

Balance at Dec. 31, 2006 7,214 18,801 25,146 7 51,168

Carrying amount at Dec. 31, 2006 6,927 5,737 6,165 1,511 20,340

of which assets leased under

finance lease contracts

Carrying amount at Dec. 31, 2006 203 1 16 – 220


>



CHANGES IN PROPERTY, PLANT AND EQUIPMENT BETWEEN JANUARY 1 AND DECEMBER 31, 2007

€ million

Land, land

rights and

buildings,

including

buildings on

third-party

land

Technical

equipment

and

machinery

Other

equipment,

operating and

office

equipment

Payments on

account and

assets under

construction

Total

Cost

Balance at Jan. 1, 2007 14,141 24,538 31,311 1,518 71,508

Foreign exchange differences 2 – 69 – 48 – 3 – 118

Changes in consolidated Group 32 – 34 1 67

Additions 299 820 1,760 1,602 4,481

Transfers 120 563 532 – 1,240 – 25

Disposals 170 804 969 42 1,985

Balance at Dec. 31, 2007 14,424 25,048 32,620 1,836 73,928


Balance at Jan. 1, 2007 7,214 18,801 25,146 7 51,168

Foreign exchange differences – 7 – 29 – 28 1 – 63

Changes in consolidated Group 9 – 11 – 20

Additions to cumulative depreciation 472 1,730 2,628 – 4,830

Additions to cumulative impairment losses 2 24 414 – 440

Transfers – 2 – 2 3 – – 1

Disposals 143 784 877 – 1,804

Reversal of impairment losses – – 0 – 0

Balance at Dec. 31, 2007 7,545 19,740 27,297 8 54,590

Carrying amount at Dec. 31, 2007 6,879 5,308 5,323 1,828 19,338

of which assets leased under

finance lease contracts

Carrying amount at Dec. 31, 2007 197 – 19 – 216

Government grants of €10 million (previous year: €47 million) were deducted from the cost of

property, plant and equipment. Call options on buildings and plant leased under the terms of

finance leases exist in most cases, and are normally exercised. Interest rates on the leases vary

between 2.9% and 14%, depending on the market and the date of inception of the lease. Future

finance lease payments due, and their present values, are shown in the following table:

€ million 2008 2009 – 2012 from 2013 Total

Finance lease payments 31 97 133 261

Interest component of finance

lease payments 10 22 15 47

Carrying amount/present value 21 75 118 214

214


For assets leased under operating leases, payments recognized in the income statement

amounted to €408 million in the year under review (previous year: €367 million).

12 Leasing and rental assets and investment property

CHANGES IN LEASING AND RENTAL ASSETS AND INVESTMENT PROPERTY


€ million

Leasing and

rental assets

Investment

property

Total

Cost

Balance at Jan. 1, 2006 12,681 315 12,996

Foreign exchange differences – 939 – 1 – 940

Changes in consolidated Group – 2,302 – – 2,302

Additions 4,839 5 4,844

Transfers – – 1 – 1

Disposals 3,801 18 3,819

Balance at Dec. 31, 2006 10,478 300 10,778


Balance at Jan. 1, 2006 2,799 148 2,947

Foreign exchange differences – 245 0 – 245

Changes in consolidated Group – 126 – – 126

Additions to cumulative depreciation 1,582 8 1,590

Additions to cumulative impairment losses 16 – 16

Transfers – 0 0

Disposals 1,433 9 1,442

Reversal of impairment losses – 1 – – 1

Balance at Dec. 31, 2006 2,592 147 2,739

Carrying amount at Dec. 31, 2006 7,886 153 8,039


>



CHANGES IN LEASING AND RENTAL ASSETS AND INVESTMENT PROPERTY


€ million

Leasing and

rental assets

Investment

property

Total

Cost

Balance at Jan. 1, 2007 10,478 300 10,778


Changes in consolidated Group 41 – 41

Additions 5,185 11 5,196

Transfers – 0 0

Disposals 3,998 10 4,008

Balance at Dec. 31, 2007 10,903 301 11,204


Balance at Jan. 1, 2007 2,592 147 2,739



Additions to cumulative depreciation 1,700 7 1,707

Additions to cumulative impairment losses 73 – 73

Transfers – – –

Disposals 1,450 4 1,454

Reversal of impairment losses 0 – 0

Balance at Dec. 31, 2007 2,724 149 2,873


Leasing and rental assets include assets leased out under the terms of operating leases.

Investment property includes apartments rented out and leased dealerships, with a fair

value of €402 million (previous year: €434 million). Operating expenses of €45 million (previous

year: €48 million) were incurred for the maintenance of investment property in use. Expenses of

€2 million (previous year: €2 million) were incurred for unused investment property.

The following payments from non-cancelable leases and rental agreements are expected to be

received over the coming years:


1,235 1,240 41 2,516

216


13 Equity-accounted investments and other equity investments

CHANGES IN EQUITY-ACCOUNTED INVESTMENTS AND OTHER EQUITY INVESTMENTS BETWEEN

JANUARY 1 TO DECEMBER 31, 2006

€ million

Equity-

accounted

investments

Other equity

investments

Total

Cost

Balance at Jan. 1, 2006 4,388 520 4,908


Changes in consolidated Group – – 44 – 44

Additions 3,022 160 3,182

Transfers 14 – 14 –

Disposals 374 9 383

Reversal of impairment losses – 0 0

Balance at Dec. 31, 2006 7,020 613 7,633

Impairment losses

Balance at Jan. 1, 2006 190 184 374


Changes in consolidated Group – – 17 – 17

Additions to cumulative impairment losses 1 35 36

Transfers – – –

Disposals 42 0 42

Reversal of impairment losses – 2 – – 2

Balance at Dec. 31, 2006 144 203 347



>



CHANGES IN EQUITY-ACCOUNTED INVESTMENTS AND OTHER EQUITY INVESTMENTS BETWEEN

JANUARY 1 TO DECEMBER 31, 2007

€ million

Equity-

accounted

investments

Other equity

investments

Total

Cost

Balance at Jan. 1, 2007 7,020 613 7,633


Changes in consolidated Group – 0 0

Additions 1,904 438 2,342

Transfers – 10 10 –

Disposals 883 159 1,042

Reversal of impairment losses – – –

Balance at Dec. 31, 2007 8,013 901 8,914

Impairment losses

Balance at Jan. 1, 2007 144 203 347


Changes in consolidated Group – – –

Additions to cumulative impairment losses 78 174 252

Transfers – 3 3 –

Disposals – 27 27

Reversal of impairment losses – – –

Balance at Dec. 31, 2007 218 353 571


Equity-accounted investments include joint ventures in the amount of €2,789 million (previous

year: €2,859 million).

Significant joint ventures and associates are detailed in the listing of significant Group

companies at the end of the notes to the consolidated financial statements.

218


14 Noncurrent and current financial services receivables

€ million current

non-

current

Carrying

amount

Dec. 31,

2007

Fair value

Dec. 31,

2007 current

non-

current

Carrying

amount

Dec. 31,

2006

Fair value

Dec. 31,

2006

Receivables from

financing business

customer financing 9,531 18,471 28,002 28,196 9,245 17,473 26,718 26,911

dealer financing 9,791 774 10,565 10,565 8,897 726 9,623 9,763

direct banking 94 0 94 94 96 164 260 255

19,416 19,245 38,661 38,855 18,238 18,363 36,601 36,929

Receivables from

operating lease

business 103 – 103 103 81 – 81 81

Receivables from

finance leases 5,395 8,277 13,672 13,675 5,107 8,087 13,194 13,490

24,914 27,522 52,436 52,633 23,426 26,450 49,876 50,500

Noncurrent receivables from the customer financing business mainly bear fixed interest at rates

of between 0.1% and 19.5%, depending on the market concerned. They have terms of up to 84

months. The noncurrent portion of dealer financing is granted at interest rates of between 2%

and 20%, depending on the country.

The receivables from customer and dealer financing are secured by vehicles or real property

liens.

The receivables from dealer financing include an amount of €202 million (previous

year: €162 million) receivable from affiliated companies.

The receivables from finance leases – almost entirely in respect of vehicles – are expected to

generate the following cash flows:


Future payments from finance

lease receivables 5,919 8,985 14 14,918

Unearned finance income from

finance leases (discounting) – 524 – 721 – 1 – 1,246

Carrying amount of receivables

from finance leases 5,395 8,264 13 13,672

Present value of unguaranteed

residual values 0 – – 0

Present value of minimum lease

payments outstanding at the

balance sheet date 5,395 8,264 13 13,672


>



15 Noncurrent and current other receivables and financial assets

€ million current

non-

current

Carrying

amount

Dec. 31,

2007

Fair value

Dec. 31,

2007 current

non-

current

Carrying

amount

Dec. 31,

2006

Fair value

Dec. 31,

2006

Other receivables from

affiliated companies 208 12 220 220 123 12 135 135

joint ventures 1,250 646 1,896 1,905 1,395 415 1,810 1,810

associates 9 – 9 9 14 – 14 14

other investees and

investors 20 101 121 121 7 118 125 124

Recoverable income

taxes 1,193 97 1,290 1,290 1,048 12 1,060 1,060

Positive fair values of

derivatives 2,127 711 2,838 2,838 1,278 691 1,969 1,969

Other assets 1,846 849 2,695 2,698 1,707 750 2,457 2,457

6,653 2,416 9,069 9,081 5,572 1,998 7,570 7,569

Other assets include plan assets to fund post-employment benefits in the amount of €101

million (previous year: €61 million). This item also includes the share of the technical

provisions attributable to reinsurers amounting to €78 million.

There are no material restrictions on title or right of use in respect of other receivables and

financial assets. Default risks are accounted for by means of valuation allowances.

Other receivables and financial assets include loans to joint ventures, associates and other

equity investments, and bear interest at rates of up to 19.5% (previous year: 21.6%).

Other receivables from affiliated companies include loans with terms of up to 12 years,

which were lent at interest rates of between 0.9% and 4.8%.

Current other receivables are predominantly non-interest-bearing.

220


The positive fair values of derivatives relate to the following items:

€ million Dec. 31, 2007 Dec. 31, 2006

Transactions for hedging against

foreign currency risk from assets using fair value hedges 52 26

foreign currency risk from liabilities using fair value hedges 39 47

interest rate risk using fair value hedges 135 237

interest rate risk using cash flow hedges 53 74

foreign currency risk from future cash flows (cash flow hedges) 1,914 1,080

Hedging transactions 2,193 1,464

Assets arising from ineffective hedging derivatives 645 505

2,838 1,969

Further details on derivative financial instruments as a whole are given in note 29 Financial risk

management and financial instruments.

16 Tax assets

€ million current noncurrent

Carrying

amount

Dec. 31,

2007 current noncurrent

Carrying

amount

Dec. 31,

2006

Deferred tax assets – 3,109 3,109 – 3,038 3,038

Tax receivables 500 952 1,452 261 1,030 1,291

500 4,061 4,561 261 4,068 4,329

€ 1,782 million (previous year: €1.469 million) of the deferred tax assets are due within one year.

17 Inventories

€ million Dec. 31, 2007 Dec. 31, 2006

Raw materials, consumables and supplies 2,225 2,061

Work in progress 1,365 1,343

Finished goods and purchased merchandise 10,425 9,050

Payments on account 16 9

14,031 12,463


>



Of the total inventories, €1,770 million (previous year: €1,932 million) is recognized at net

realizable value. At the same time as the relevant revenue was recognized, inventories in the

amount of €84,512 million were included in cost of sales (previous year: €83,457 million).

Valuation allowances recognized as expenses in the reporting period amounted to €221 million

(previous year: €225 million). Vehicles amounting to €98 million (previous year: €77 million)

were assigned as collateral for partial retirement obligations.

18 Trade receivables

€ million Dec. 31, 2007 Dec. 31, 2006

Trade receivables from

third parties 5,176 4,594

affiliated companies 175 210


associates 4 39

other investees and investors 7 12

5,691 5,049

The fair values of the trade receivables correspond to the carrying amounts.

19 Marketable securities

The marketable securities serve to safeguard liquidity. Marketable securities are quoted, mainly

short-term fixed-income securities, and shares.

20 Cash and cash equivalents

€ million Dec. 31, 2007 Dec. 31, 2006

Bank balances 9,857 9,212

Checks, cash-in-hand and call deposits 255 155

10,112 9,367

Bank balances are held at various banks in different currencies.

222


21 Equity

Retained earnings

€ million

Sub-

scribed

capital

Capital

reserves Accumu-

lated

profit

Currency

trans-

lation

reserve

Reserve

for actu-

arial

gains and

losses

Reserve

for cash

flow

hedges

Fair value

reserve

for

securities

Equity-

accoun-

ted

invest-

ments

Equity

attribut-

able to

share-

holders of

VW AG

Minority

interests

Total

equity

Balance

at Jan. 1, 2006 1,093 4,513 21,251 – 1,445 – 1,852 – 132 172 – 23,600 47 23,647

Capital change – 89 429 – – – – – – 340 – 340

Dividend payment – – 450 – – – – – 450 1 451

Recognized income

and expense – – 2,749 – 250 318 1,083 85 – 3,985 1 3,986

Deferred taxes – – – – – 116 – 449 – 15 – – 580 – – 580

Other changes – – – 1 – 10 – – – 9 8 17

Balance

at Dec. 31, 2006 1,004 4,942 23,549 – 1,695 – 1,640 502 242 – 26,904 55 26,959

Balance before

restatement

Jan. 1, 2007 1,004 4,942 23,549 – 1,695 – 1,640 502 242 – 26,904 55 26,959

Reclassification of

equity-accounted

investments – – – 17 423 – – – – 406 – – –

Balance after

restatement

Jan. 1, 2007 1,004 4,942 23,532 – 1,272 – 1,640 502 242 – 406 26,904 55 26,959

Capital increase 11 200 – – – – – – 211 – 211

Dividend payment – – 497 – – – – – 497 0 497

Recognized income

and expense – – 4,120 – 228 1,427 995 – 375 47 5,986 2 5,988

Deferred taxes – – – – – 610 – 233 103 – – 740 – – 740

Other changes – – 11 – – – – – 11 6 17

Balance

at Dec. 31, 2007 1,015 5,142 27,166 – 1,500 – 823 1,264 – 30 – 359 31,875 63 31,938

The income and expense recognized directly in equity that are attributable to equity-accounted

investments are reported in a separate column in equity due to their increased significance.

The subscribed capital of Volkswagen AG is denominated in euros. The shares are no-par

value bearer shares. Each share has a notional value of €2.56. As well as ordinary shares, there

are preferred shares that entitle the bearer to a €0.06 higher dividend than ordinary shares, but

do not carry voting rights.

The subscribed capital is composed of 291,337,267 no-par value ordinary shares and

105,238,280 preferred shares, and amounts to €1,015 million (previous year: €1,004 million).


>



CHANGE IN ORDINARY AND PREFERRED SHARES AND SUBSCRIBED CAPITAL

Shares €

2007 2006 2007 2006

Balance at January 1 392,218,347 427,168,080 1,004,078,968 1,093,550,285

Retirement of ordinary

treasury shares – 41,719,353 – 106,801,544

Issued shares (stock option plan) 4,357,200 6,769,620 11,154,432 17,330,227

Balance at December 31 396,575,547 392,218,347 1,015,233,400 1,004,078,968

Based on the resolution by the Annual General Meeting on May 3, 2006, authorized capital of up

to €90 million, expiring on May 2, 2011, was approved for the issue of new ordinary bearer

shares. Additional authorized capital of up to €400 million was adopted by a resolution by the

Annual General Meeting on April 22, 2004, expiring on April 21, 2009.

There is also contingent capital of €100 million for the issue of up to 39,062,500 ordinary

and/or preferred shares. This contingent capital increase will be implemented only to the extent

that the holders of convertible bonds to be issued before April 21, 2009 exercise their

conversion rights.

The capital reserves comprise the share premium of a total of €4,816 million from the

capital increases, the share premium of €219 million from the issue of bonds with warrants and

an amount of €107 million appropriated on the basis of the capital reduction implemented in

the previous fiscal year. Capital reserves rose by €200 million in fiscal year 2007 as a result of

the share premium from the capital increase due to the exercise of convertible bonds under the

stock option plan. No amounts were withdrawn from the capital reserves.

STOCK OPTION PLAN

The Board of Management, with the consent of the Supervisory Board, exercised the

authorization given by the Annual General Meeting on April 16, 2002 to implement a stock

option plan. Contingent capital of €16.5 million was created for this purpose. The contingent

capital increase will only be implemented to the extent that the holders of convertible bonds

issued on the basis of the authorization by the Annual General Meeting to establish a stock

option plan exercise their conversion rights.

The stock option plan entitles the optionees – the Board of Management, Group senior

executives and management, as well as employees of Volkswagen AG covered by collective pay

agreements – to purchase options on shares of Volkswagen AG by subscribing for convertible

bonds at a price of €2.56 each. Each bond is convertible into ten ordinary shares.

The convertible bonds are measured at fair value at the date of grant to the employees. The

convertible bonds measured at fair value are recognized in personnel expenses and in equity.

The conversion prices and periods following the expiration of the first three tranches are

shown in the following table. The information on the fourth tranche is presented as data for

fiscal year 2007, although this tranche has now also expired.

224


CONVERSION PRICES AND PERIODS FOR EACH TRANCHE OF THE STOCK OPTION PLAN

€ 4th tranche 5th tranche 6th tranche 7th tranche 8th tranche

Base conversion price per share 51.52 36.54 38.68 37.99 58.18

Conversion price

as from June 19, 2004 56.67

as from publication of interim report

for Jan. – Sept. 2004 59.25

as from July 12, 2005 40.19


for Jan. – Sept. 2005 61.82 42.02

as from July 10, 2006 42.55


for Jan. – Sept. 2006 64.40 43.85 44.48

as from July 9, 2007 41.79


for Jan. – Sept. 2007 45.68 46.42 43.69

as from July 8, 2008 64.00


for Jan. – Sept. 2008 48.35 45.59 66.91


for Jan. – Sept. 2009 47.49 69.82


for Jan. – Sept. 2010 72.73

Beginning of conversion period June 19, 2004 July 12, 2005 July 10, 2006 July 9, 2007 July 8, 2008

End of conversion period June 11, 2007 July 4, 2008 July 2, 2009 July 1, 2010 June 30, 2011

The total value at December 31, 2007 of the convertible bonds issued at €2.56 per convertible

bond was €964,648.96 (= 376,816 bonds), conveying the right to purchase 3,768,160 ordinary

shares. The liabilities from convertible bonds are recognized under other liabilities. In fiscal

year 2007, 11,503 convertible bonds with a value of €29,447.68 were returned by employees

who have since left the Company. 435,720 conversion rights from the fourth, fifth, sixth and

seventh tranches with a nominal value of €1,115,443.20 have been exercised. 4,357,200 shares

with a notional value of €11,154,432.00 were thus issued.


>



Changes in the rights to stock options granted (fifth to eighth tranches) are shown in the

following table:

Nominal

value of

convertible

bonds

Number of

conversion

rights

Number of

potential

ordinary

shares

€ Rights Shares

Balance at January 1, 2007 2,109,539.84 824,039 8,240,390

In fiscal year

granted – – –

exercised 1,115,443.20 435,720 4,357,200

returned 29,447.68 11,503 115,030

Balance at December 31, 2007 964,648.96 376,816 3,768,160

MEASUREMENT OF CONVERTIBLE BONDS IN THE FIFTH TO EIGHT TRANCHES

Those convertible bonds granted after publication of the draft IFRS 2 on November 7, 2002

were measured in accordance with the transitional provisions of IFRS 2.

The fair value of the convertible bonds is estimated using a binomial option pricing model

based on the issuance and conversion conditions described above. In terms of the optionees'

conversion behavior, it was assumed that they will convert when the share price is 50% higher

than the conversion price. Historical and implied volatilities based on the expected remaining

term of the conversion rights were used to estimate the fair value of the convertible bonds. The

assumptions used and the fair value estimated are presented in the following table:

5th tranche 6th tranche 7th tranche 8th tranche

Volatility (%) 27.50 27.50 27.50 27.50

Risk-free rate (%) 3.00 3.49 2.57 3.77

Dividends (%) 3.20 3.20 3.20 3.20

Fair value per convertible bond (€) 48.25 39.66 48.71 63.49

The fair value of the convertible bonds is recognized ratably as a personnel expense over the

two-year vesting period. This produced expenses of €15 million in 2007.

226


Changes in the number of convertible bonds in issue and their exercise prices are shown in the

following table:

Average

exercise

price per

convertible

bond*

Convertible

bonds

€ Quantity

Balance at January 1, 2007 519.72 703,074

In fiscal year

granted – –

returned 553.30 11,418

exercised 423.99 314,840

Balance at December 31, 2007 603.70 376,816

of which available for exercise 449.76 71,895

* Conversion price per ten shares.

For 404,410 convertible bonds, the average conversion price increased by €46.70 in 2007.

Exercise

price per

convertible

bond*

Convertible

bonds

2007 € Quantity

5th tranche 456.80 21,824

6th tranche 464.20 17,954

7th tranche 436.90 32,117

8th tranche 640.00 304,821

376,816

* Conversion price per ten shares.

314,840 convertible bonds were converted in fiscal year 2007 at a weighted average share price

on exercise of €1,331.21.


>



DIVIDEND PROPOSAL

In accordance with section 58(2) of the Aktiengesetz (AktG – German Stock Corporation Act),

the dividend payment by Volkswagen AG is based on the net retained profits reported in the

annual financial statements of Volkswagen AG. Based on the annual financial statements of

Volkswagen AG, net retained profits of €745 million are eligible for distribution. The Board of

Management and Supervisory Board of Volkswagen AG will propose to the Annual General

Meeting that a dividend of €1.80 per ordinary share and €1.86 per preferred share be paid, for a

total of €720 million, and that the remaining amount of €24.5 million be carried forward to new

account.

MINORITY INTERESTS

The minority interests in equity are attributable primarily to shareholders of AUDI AG.

22 Noncurrent and current financial liabilities

The details of noncurrent and current financial liabilities are presented in the following table:

€ million current

non-

current

Carrying

amount

Dec. 31,

2007 current

non-

current

Carrying

amount

Dec. 31,

2006

Bonds 6,943 20,364 27,307 7,492 19,177 26,669

Commercial paper and notes 6,924 2,901 9,825 8,153 3,310 11,463

Liabilities to banks 5,082 2,777 7,859 5,225 2,864 8,089

Deposits from direct banking business 8,421 1,199 9,620 7,713 1,114 8,827

Loans 1,058 1,881 2,939 1,267 2,069 3,336

Bills of exchange 0 – 0 0 – 0

Finance lease liabilities 21 193 214 16 200 216

Financial liabilities to

affiliated companies 190 – 190 125 – 125

joint ventures 16 – 16 25 – 25

associates 6 – 6 4 – 4

other investees and investors 16 – 16 3 – 3

28,677 29,315 57,992 30,023 28,734 58,757

Of the liabilities reported in the consolidated balance sheet, a total of €325 million (previous

year: €389 million) is secured, for the most part by real estate liens.

Asset-backed securities transactions amounting to €13,015 million (previous year: €12,216

million) entered into to refinance the financial services business via special purpose entities are

included in bonds, commercial paper and notes, and liabilities from loans. Receivables of

€14,208 million (previous year: €13,867 million) from the customer financing and leasing

businesses are pledged as collateral.

228


23 Noncurrent and current other liabilities

€ million current

non-

current

Carrying

amount

Dec. 31,

2007 current

non-

current

Carrying

amount

Dec. 31,

2006

Payments on account received in respect of orders 1,215 21 1,236 938 18 956

Other liabilities to

affiliated companies 71 0 71 34 0 34

joint ventures 31 – 31 0 – 0

associates 0 – 0 16 – 16

other investees and investors 1 – 1 1 – 1

Negative fair values of derivative financial

instruments 419 258 677 353 310 663

Liabilities relating to

other taxes 783 372 1,155 692 277 969

social security 232 30 262 203 20 223

wages and salaries 1,344 243 1,587 1,063 178 1,241

Miscellaneous liabilities 2,988 1,321 4,309 3,033 932 3,965

7,084 2,245 9,329 6,333 1,735 8,068

The negative fair values of derivatives relate to the following items:

€ million Dec. 31, 2007 Dec. 31, 2006

Transactions for hedging against

foreign currency risk from assets using fair value hedges 5 22

foreign currency risk from liabilities using fair value hedges 243 227

interest rate risk using fair value hedges 47 46

interest rate risk using cash flow hedges 38 10

foreign currency risk from future cash flows (cash flow hedges) 201 223

Hedging transactions 534 528

Liabilities arising from ineffective hedging derivatives 143 135

677 663

Further details on derivative financial instruments as a whole are given in note 29 Financial risk

management and financial instruments.


>



24 Tax liabilities

Carrying

amount

Carrying

amount

€ million current noncurrent Dec. 31, 2007 current noncurrent Dec. 31, 2006

Deferred tax liabilities – 2,637 2,637 – 2,154 2,154

Provisions for taxes 1,828 2,275 4,103 – 2,586 2,586

Current tax payables 98 – 98 34 – 34

1,926 4,912 6,838 34 4,740 4,774

€1,790 million (previous year: €1,368 million) of the deferred tax liabilities are due within one year.

25 Provisions for pensions and other post-employment benefits

Provisions for pensions are recognized for benefits in the form of retirement, invalidity and

dependents' benefits payable under pension plans. The benefits provided by the Group vary

according to the legal, tax and economic circumstances of the country concerned, and usually

depend on the length of service and remuneration of the employees.

Group companies provide occupational pensions under both defined contribution and

defined benefit plans. In the case of defined contribution plans, the Company makes

contributions to state or private pension schemes based on legal or contractual requirements,

or on a voluntary basis. Once the contributions have been paid, there are no further obligations

for the Company. Current contributions are recognized as pension expenses of the period

concerned. In 2007, they amounted to €785 million (previous year: €798 million) in the

Volkswagen Group. Contributions to the compulsory state pension system in Germany

amounted to €746 million (previous year: €763 million).

Most pension plans are defined benefit plans, with a distinction made between pensions

financed by provisions and externally funded plans.

230


The pension provisions for defined benefits are measured using the internationally accepted

projected unit credit method in accordance with IAS 19, under which the future obligations are

measured on the basis of the ratable benefit entitlements earned as of the balance sheet date.

Measurement reflects assumptions as to trends in the relevant variables affecting the level of

benefits. All defined benefit plans require actuarial calculations. Actuarial gains or losses arise

from changes in the number of beneficiaries and differences between actual trends (for

example, in salary and pension increases or changes in interest rates) and the assumptions on

which calculations were based. Actuarial gains and losses are taken directly to equity.

Owing to their benefit character, the obligations of the US Group companies in respect of

post-employment medical care in particular are also carried under provisions for pensions and

other post-employment benefits. These post-employment benefit provisions take into account

the expected long-term rise in the cost of healthcare. A one percentage point increase or

decrease in the assumed healthcare cost trends only marginally affects the amount of the

obligations. €10 million was recognized in fiscal year 2007 as an expense for healthcare costs

(previous year: €6 million). The related carrying amount was therefore €160 million as of

December 31, 2007 (previous year: €185 million).

Since 1996, the occupational pension arrangements of the Volkswagen Group in Germany

have been based on a specially developed expense-related pension model that is classified as a

defined benefit plan under IAS 19. With effect from January 1, 2001, this model was further

developed into a pension fund, with the annual remuneration-linked contributions being

invested in funds by Volkswagen Pension Trust e.V. as the trustee. By investing in funds, this

model offers an opportunity for increasing benefit entitlements, while at the same time fully

safeguarding them. For this reason, almost all Group companies in Germany have now joined

the fund. Since the fund investments held by the trust meet the criteria of IAS 19 for

classification as plan assets, they are deducted from the obligation.

Where the foreign Group companies provide collateral for obligations, this mainly takes the

form of shares, fixed-income securities and real estate. These do not include any financial

instruments issued by companies of the Volkswagen Group, or any investment property used by

Group companies.


>



The following amounts were recognized in the balance sheet for defined benefit plans:

€ million Dec. 31, 2007 Dec. 31, 2006 Dec. 31, 2005 Dec. 31, 2004

Present value of funded obligations 3,330 3,235 2,959 2,455

Fair value of plan assets 3,422 3,159 2,690 2,068

Funded status (net) – 92 76 269 387

Present value of obligations not externally financed 12,532 13,652 13,618 12,169

Unrecognized past service cost 31 23 39 – 31

Amount not recognized as an asset

because of the limit in IAS 19 31 42 47 33

Net liability recognized in the balance sheet 12,502 13,793 13,973 12,558

of which provisions for pensions and other

post-employment benefits 12,603 13,854 14,003 12,633

of which other assets 101 61 30 75

The present value of the obligations is calculated as follows:

€ million 2007 2006

Present value of obligations at January 1 16,887 16,577

Current service cost 336 400

Interest cost 796 709

Actuarial losses – 1,522 – 197

Employee contributions to plan assets 12 2

Pension payments from company assets 540 509

Pension payments from plan assets 97 77

Past service cost 10 16

Gains from plan curtailments and settlements – 25 – 5


Other changes 56 118


Present value of obligations at December 31 15,862 16,887

232


Changes in the composition of the plan assets are shown in the following table:

€ million 2007 2006

Fair value of plan assets at January 1 3,159 2,690

Expected return on plan assets 217 156

Actuarial losses/gains – 95 121

Employer contributions to plan assets 281 326

Employee contributions to plan assets 12 2

Pension payments from plan assets 97 77


Other changes 37 23


Fair value of plan assets at December 31 3,422 3,159

Investment of the plan assets to cover future pension obligations resulted in actual gains in the

amount of €122 million (previous year: €277 million).

The rate for the expected long-term return on plan assets is based on the long-term returns

actually generated for the portfolio, historical overall market returns and a forecast of expected

returns on the securities classes held in the portfolio. The forecasts are based on returns

expected for comparable pension funds for the remaining period of service, as the investment

horizon, as well as on the experience of managers of large portfolios and of experts in the

investment industry.

Employer contributions to plan assets are expected to amount to €240 million next year.

Plan assets consist of the following components:

% 2007 2006

Equities 35.6 42.9

Fixed-income securities 52.4 48.3

Cash 5.0 4.6

Real estate 3.1 3.4

Other 3.9 0.8


>



The following amounts were recognized in the income statement:

€ million 2007 2006

Current service cost 336 400

Interest cost 796 709

Expected return on plan assets 217 156

Past service cost 10 16

Gains from plan curtailments and settlements – 25 – 5

Gains/losses as a result of application of limit under IAS 19.58(b) – 8 5

Net income and expenses recognized in profit or loss 892 969

The above amounts are generally included in the personnel costs of the functions in the income

statement. Interest cost on pension provisions and the expected return on plan assets are

presented in finance costs (note 6).

The net liability recognized in the balance sheet has changed as follows:

€ million 2007 2006

Net liability recognized in the balance sheet at January 1 13,793 13,973


Net expense recognized in the income statement 892 969

Benefit payments from company assets

and contributions to funds 821 835

Actuarial gains – 1,427 – 318

Other changes 30 82

Foreign exchange differences 0 – 16

Net liability recognized in the balance sheet at December 31 12,502 13,793

234


The experience adjustments, meaning differences between changes in assets and obligations

expected on the basis of actuarial assumptions and actual changes in those assets and

obligations, are shown in the following table:

2007 2006 2005 2004

Differences between expected

and actual developments:

as % of fair value of the

obligation – 0.48 0.03 0.25 2.63

as % of fair value of plan assets – 2.44 2.57 2.12 – 0.27

Calculation of the pension provisions was based on the following assumptions:

Germany Abroad

% 2007 2006 2007 2006

Discount rate at December 31 5.50 4.50 2.00 – 9.00 2.00 – 11.50

Expected return on plan assets 5.00 5.00 2.00 – 9.80 4.50 – 11.05

Salary trend 2.50 1.50 – 2.00 2.00 – 7.60 1.50 – 5.86

Pension trend 1.00 – 1.60 1.00 – 1.25 2.20 – 5.25 1.70 – 5.10

Employee turnover rate 0.75 – 1.40 1.00 – 2.00 3.00 – 5.25 3.00 – 7.00

Annual increase in healthcare

costs – – 4.50 – 7.75 4.50 – 7.75


>



26 Noncurrent and current other provisions

€ million

Obligations

arising from

sales

Employee

expenses

Other

provisions

Total

Balance at January 1, 2006 8,198 2,305 2,621 13,124

Foreign exchange differences – 139 – 14 – 51 – 204

Changes in consolidated Group – 2 – 48 – 76 – 126

Utilized 4,004 849 695 5,548

Additions/New provisions 5,364 2,357 1,700 9,421

Interest cost 120 29 5 154

Reversals 385 100 335 820

Balance at January 1, 2007 9,152 3,680 3,169 16,001

Foreign exchange differences – 102 – 5 5 – 102

Changes in consolidated Group 0 6 99 105

Utilized 4,062 1,656 579 6,297

Additions/New provisions 5,445 1,093 2,011 8,549

Interest cost 41 – 14 – 4 23

Reversals 339 75 307 721

Balance at December 31, 2007 10,135 3,029 4,394 17,558

The obligations arising from sales contain provisions covering all risks relating to the sale of

vehicles, components and genuine parts through to the disposal of end-of-life vehicles. They

primarily comprise warranty claims, calculated on the basis of losses to date and estimated

future losses. They also include provisions for discounts, bonuses and similar allowances

incurred after the balance sheet date, but for which there is a legal or constructive obligation

attributable to sales revenue before the balance sheet date.

Provisions for employee expenses are recognized for long-service awards, time credits, the

part-time scheme for employees near to retirement, severance payments and similar

obligations, among other things.

Other provisions relate to a wide range of identifiable risks and uncertain obligations and

are measured in the amount of the expected settlement value.

Other provisions include technical provisions (insurance) amounting to €115 million.

53% of the other provisions are expected to result in cash outflows in the following year,

39% between 2009 and 2012, and 8% thereafter.

236


27 Trade payables

€ million Dec. 31, 2007 Dec. 31, 2006

Trade payables to

third parties 9,014 8,081

affiliated companies 39 64


associates 1 6

other investees and investors 15 10

9,099 8,190

Additional Balance Sheet Disclosures in accordance with IFRS 7 (Financial Instruments)

CARRYING AMOUNT OF FINANCIAL INSTRUMENTS BY MEASUREMENT CATEGORY UNDER IAS 39

€ million Dec. 31, 2007 Dec. 31, 2006

Financial assets at fair value through profit or loss 1,522 829

Loans and receivables 47,053 44,245

Available-for-sale financial assets 16,398 14,544

Financial liabilities at fair value through profit or loss 143 135

Financial liabilities measured at amortized cost 60,345 60,758


>



RECONCILIATION OF BALANCE SHEET ITEMS TO CLASSES OF FINANCIAL INSTRUMENTS

The following table shows the reconciliation of the balance sheet items to the relevant classes of

financial instruments, broken down by carrying amount and fair value of the financial

instruments.



Measured at

fair value

Measured at amortized cost Not within

scope of

IFRS 7

Other Balance

sheet item

at Dec. 31,

2006

€ million

Carrying

amount

Carrying

amount

Fair value Carrying

amount

Carrying

amount

Noncurrent assets

Equity-accounted investments – – – 6,876 – 6,876

Other equity investments – 410 410 – – 410

Financial services receivables – 26,450 27,074 – – 26,450

Other receivables and

financial assets 691 636 636 – 671 1,998

Current assets

Trade receivables – 5,049 5,049 – – 5,049



financial assets 1,278 1,879 1,879 – 2,415 5,572

Marketable securities 5,091 – – – – 5,091

Cash and cash equivalents 9,367 – – – – 9,367


Noncurrent financial liabilities – 28,734 28,794 – – 28,734

Other noncurrent liabilities 310 1 1 – 1,424 1,735

Current liabilities

Current financial liabilities – 30,023 30,023 – – 30,023

Trade payables – 8,190 8,190 – – 8,190

Other current liabilities 353 751 751 – 5,229 6,333

238




Measured at

fair value

Measured at amortized cost Not within

scope of

IFRS 7

Other Balance

sheet item

at Dec. 31,

2007

€ million

Carrying

amount

Carrying

amount

Fair value Carrying

amount

Carrying

amount

Noncurrent assets

Equity-accounted investments – – – 7,795 – 7,795

Other equity investments – 548 548 – – 548



financial assets 711 828 828 – 877 2,416

Current assets

Trade receivables – 5,691 5,691 – – 5,691



financial assets 2,127 1,771 1,771 – 2,755 6,653

Marketable securities 6,615 – – – – 6,615

Cash and cash equivalents 10,112 – – – – 10,112


Noncurrent financial liabilities – 29,315 29,405 – – 29,315

Other noncurrent liabilities 258 1 1 – 1,986 2,245

Current liabilities

Current financial liabilities – 28,677 28,677 – – 28,677

Trade payables – 9,099 9,099 – – 9,099

Other current liabilities 419 716 716 – 5,949 7,084


>



CHANGES IN VALUATION ALLOWANCES ON FINANCIAL ASSETS

€ million

Specific

valuation

allowances

Portfolio-

based

valuation

allowances

2007 Specific

valuation

allowances

Portfolio-

based

valuation

allowances

2006

Balance at January 1 1,259 590 1,849 978 749 1,727

Additions 565 88 653 450 81 531

Utilization 261 0 261 209 – 209

Reversals 295 111 406 136 64 200

Reclassification/Other changes – 4 – 4 – 8 176 – 176 0

Balance at December 31 1,264 563 1,827 1,259 590 1,849

240


28 Cash flow statement

Cash flows are presented in the cash flow statement classified into cash flows from operating

activities, investing activities and financing activities, irrespective of the format of the balance

sheet.

Cash flows from operating activities are derived indirectly from profit before tax. Profit

before tax is adjusted to eliminate noncash expenses (mainly depreciation and amortization)

and income. This results in cash flows from operating activities after accounting for changes in

working capital.

Investing activities include additions to property, plant and equipment, and noncurrent

financial assets, as well as to capitalized development costs. The changes in leasing and rental

assets and in financial services receivables are also included here.

Financing activities include outflows of funds from dividend payments and redemption of

bonds, as well as inflows from the issue of bonds and changes in other financial liabilities.

The changes in balance sheet items that are presented in the cash flow statement cannot be

derived directly from the balance sheet, as the effects of currency translation and changes in the

consolidated Group are noncash transactions and are therefore eliminated.

The changes in cash and cash equivalents due to changes in the consolidated Group

structure relate to cash and cash equivalents of initially consolidated and deconsolidated

companies.

In 2007, cash flows from operating activities include interest received amounting to €4,096

million (previous year: €3,879 million) and interest paid amounting to €2,934 million (previous

year: €3,184 million). In addition, the share of profits and losses of equity-method investments

(note 5) includes dividends amounting to €667 million (previous year €139 million). Dividends

amounting to €497 million (previous year: €450 million) were paid to Volkswagen AG

shareholders.

€ million Dec. 31, 2007 Dec. 31, 2006

Cash and cash equivalents as reported in the balance sheet 10,112 9,367

Time deposit investments 198 –

Cash and cash equivalents as reported in the cash flow statement 9,914 9,367

29 Financial risk management and financial instruments

1. HEDGING GUIDELINES AND FINANCIAL RISK MANAGEMENT PRINCIPLES

The principles and responsibilities for managing and controlling the risks that could arise from

financial instruments are defined by the Board of Management and monitored by the

Supervisory Board. General rules apply to the Group-wide risk policy; these are oriented on the

statutory requirements and the "Minimum Requirements for Risk Management by Credit

Institutions".

Other Disclosures


>



Group Treasury is responsible for operational risk management and control. The Executive

Committee for Liquidity and Foreign Currency is regularly informed about current financial

risks. In addition, the Group Board of Management and the Supervisory Board are regularly

updated on the current risk situation.

For more information, please see the Management Report on page 168.

2. CREDIT AND DEFAULT RISK

The credit and default risk arising from financial assets involves the risk of default by

counterparties, and therefore comprises at a maximum the amount of the claims under positive

fair value receivable from them. The risk arising from primary financial instruments is

accounted for by recognizing bad debt losses. Cash and capital investments and derivatives are

only entered into with prime-rated national and international counterparties. Risk is

additionally limited by a limit system based on credit assessments by the international rating

agencies.

There were no material concentrations of risk in fiscal year 2007 due to the global allocation

of the Group’s business activities and the resulting diversification.

CREDIT AND DEFAULT RISK RELATING TO FINANCIAL ASSETS BY GROSS CARRYING AMOUNT

€ million

Neither

past due

nor

impaired

Past due

and not

impaired

Impaired Dec. 31,

2007

Neither

past due

nor

impaired

Past due

and not

impaired

Impaired Dec. 31,

2006

Measured at amortized

cost

Financial services

receivables 50,298 2,254 1,782 54,334 46,653 2,625 2,221 51,499

Trade receivables 4,747 873 286 5,906 4,232 762 282 5,276

Other receivables 14,402 205 406 15,013 14,158 220 276 14,654

Measured at fair value 8,882 – – 8,882 4,725 – – 4,725

78,329 3,332 2,474 84,135 69,768 3,607 2,779 76,154

242


CREDIT RATING OF THE GROSS CARRYING AMOUNTS OF FINANCIAL ASSETS

THAT ARE NEITHER PAST DUE NOR IMPAIRED

€ million

Risk class 1 Risk class 2 Dec. 31,

2007

Risk class 1 Risk class 2 Dec. 31,

2006

Measured at amortized cost

Financial services receivables 42,493 7,805 50,298 39,098 7,555 46,653

Trade receivables 4,747 0 4,747 4,232 – 4,232

Other receivables 14,401 1 14,402 14,158 0 14,158

Measured at fair value 8,882 – 8,882 4,725 – 4,725

70,523 7,806 78,329 62,213 7,555 69,768

The Volkswagen Group performs a credit assessment of borrowers in all loan and lease

agreements, using scoring systems for the high-volume business and rating systems for

corporate customers and receivables from dealer financing. Receivables rated as good are

contained in risk class 1. Receivables from customers whose credit rating is not good but have

not yet defaulted are contained in risk class 2.

MATURITY ANALYSIS OF THE GROSS CARRYING AMOUNTS OF FINANCIAL ASSETS

THAT ARE PAST DUE AND NOT IMPAIRED

past due by:

€ million

up to 30 days 30 to 90 days more than 90

days

Dec. 31, 2006


Financial services receivables 2,231 387 7 2,625

Trade receivables 562 110 90 762

Other receivables 120 33 67 220

Measured at fair value – – – –

2,913 530 164 3,607


>



past due by:

€ million

up to 30 days 30 to 90 days more than 90

days

Dec. 31, 2007


Financial services receivables 1,898 351 5 2,254

Trade receivables 589 145 139 873

Other receivables 122 27 56 205

Measured at fair value – – – –

2,609 523 200 3,332

CARRYING AMOUNTS OF FINANCIAL INSTRUMENTS THAT WOULD OTHERWISE BE PAST DUE

WHOSE TERMS HAVE BEEN RENEGOTIATED

€ million Dec. 31, 2007 Dec. 31, 2006


Financial services receivables 478 619

Trade receivables 12 12

Other receivables – –

Measured at fair value – –

490 631

Collateral that met the recognition criteria under IFRSs was recognized in the balance sheet in

the amount of €174 million in fiscal year 2007 (previous year: €186 million). This mainly relates

to vehicles.

244


3. LIQUIDITY RISK

The solvency and liquidity of the Volkswagen Group is ensured at all times by rolling liquidity

planning, a liquidity reserve in the form of cash, confirmed credit lines and globally available

debt issuance programs.

The following overview shows the contractual undiscounted cash flows from financial

instruments.

MATURITY ANALYSIS OF UNDISCOUNTED CASH FLOWS FROM FINANCIAL INSTRUMENTS

Remaining contractual maturities: Remaining contractual maturities:

€ million

under

one

year

within

one to

five

years

over

five

years

2007

under

one

year

within

one to

five

years

over

five

years

2006

Financial liabilities 30,755 27,488 4,001 62,244 31,220 26,620 5,722 63,562

Trade payables 9,244 49 24 9,317 8,216 88 0 8,304

Other financial liabilities 2,367 868 806 4,041 2,369 1,023 436 3,828

Derivatives 21,912 6,205 660 28,777 21,854 7,334 279 29,467

64,278 34,610 5,491 104,379 63,659 35,065 6,437 105,161

Derivatives comprise both cash flows from derivative financial instruments with negative fair

values and cash flows from derivatives with positive fair values for which gross settlement has

been agreed. The cash outflows from derivatives for which gross settlement has been agreed are

matched in part by cash inflows. These cash inflows are not reported in the maturity analysis. If

the cash inflows were recognized, the cash flows presented in the maturity analysis would be

substantially lower.


>



4. MARKET RISK

4.1 HEDGING POLICY AND FINANCIAL DERIVATIVES

During the course of its general business activities, the Volkswagen Group is exposed to foreign

currency, interest rate, commodity price and fund price risk. Corporate policy is to limit or

eliminate such risk by means of hedging. All necessary hedging transactions are executed or

coordinated centrally by Group Treasury.

The following table shows the gains and losses on hedges:

€ million 2007 2006

Hedging instruments used in fair value hedges 21 – 361

Hedged items used in fair value hedges – 34 350

Ineffective portion of cash flow hedges – 16 5

The ineffective portion of cash flow hedges represents the income and expenses from changes

in the fair value of hedging instruments that exceed the fair value of hedged items that are

shown to be within the permitted range of 80% to 125% when measuring effectiveness. Such

income or expenses are recognized directly in the financial result.

In 2007, €–485 million (previous year: €21 million) from the cash flow hedge reserve was

transferred to the net other operating result and €–92 million (previous year: €–46 million) to

the financial result.

The Volkswagen Group uses two different methods to present market risk from primary and

derivative financial instruments in accordance with IFRS 7. A value-at-risk model is used to

measure foreign currency and interest rate risk in the Financial Services Division, while market

risk in the Automotive Division is determined using a sensitivity analysis. The value-at-risk

calculation entails determining potential changes in financial instruments in the event of

variations in interest and exchange rates using a historical simulation based on the last 250

trading days. Other calculation parameters are a holding period of 10 days and a confidence

level of 99%. The sensitivity analysis calculates the effect on equity and profit by modifying risk

variables within the respective market risks.

246


4.2 MARKET RISK IN THE FINANCIAL SERVICES DIVISION

Exchange rate risk in the Financial Services Division is mainly attributable to assets that are not

denominated in the functional currency and from refinancing within operating activities.

Interest rate risk relates to refinancing without matching maturities and the varying interest

rate elasticity of individual asset and liability items. The risks are limited by the use of currency

and interest rate hedges.

As of December 31, 2007, the value at risk for interest rate risk was €14 million (previous

year: €25 million) and €24 million for foreign currency risk (previous year: €29 million).

The entire value at risk for interest rate and foreign currency risk at the Financial Services

Division was €37 million (previous year: €36 million).

4.3 MARKET RISK IN THE AUTOMOTIVE DIVISION

4.3.1 Foreign currency risk

Foreign currency risk in the Automotive Division is attributable to investments, financing

measures and operating activities. Currency forwards, currency options, currency swaps and

cross-currency swaps are used to limit foreign currency risk. These transactions relate to the

exchange rate hedging of all payments covering general business activities that are not made in

the functional currency of the respective Group companies. The principle of matching

currencies applies to the Group’s financing activities.

As part of foreign currency risk management, hedging transactions in 2007 related

primarily to the US dollar, sterling, the Swiss franc, the Japanese yen, the Swedish krone and

the Russian rouble.

All non-functional currencies in which the Volkswagen Group enters into financial

instruments are included as relevant risk variables in the sensitivity analysis in accordance with

IFRS 7.

If the relevant functional currencies had been measured 10% higher than the other

currencies as of December 31, 2007, the hedging reserve in equity and the fair value of the

hedges would have been €1,385 million higher (previous year: €1,388 million). If the relevant

functional currencies had been measured 10% lower than the other currencies as of

December 31, 2007, the hedging reserve in equity and the fair value of the hedges would have

been €1,272 million lower (previous year: €947 million).

If the relevant functional currencies had been measured 10% higher than the other

currencies as of December 31, 2007, profit would have been €638 million lower (previous

year: €346 million). If the relevant functional currencies had been measured 10% lower than

the other currencies as of December 31, 2007, profit would have been €685 million higher

(previous year: €188 million higher).


>



4.3.2 Interest rate risk

Interest rate risk in the Automotive Division results from changes in market interest rates,

primarily for medium- and long-term variable interest receivables and liabilities. Interest rate

swaps, cross-currency swaps and other types of interest rate contracts are entered into to hedge

against this risk under fair value or cash flow hedges, depending on market conditions. Intra-

Group financing arrangements are normally structured to match the maturities of their

refinancing.

Interest rate risk within the meaning of IFRS 7 is calculated for the Automotive Division

using sensitivity analyses. The effects of the risk variables in the form of market rates of interest

on the financial result and on equity are presented here.

If market interest rates had been 100 bps higher as of December 31, 2007, equity would

have been €81 million (previous year: €62 million) lower. If market interest rates had been 100

bps lower as of December 31, 2007, equity would have been €91 million higher (previous

year: €66 million).

If market interest rates had been 100 bps higher (lower) as of December 31, 2007, profit

would have been €105 million (previous year: €126 million) higher (lower).

4.3.3 Commodity price risk

Commodity price risk in the Automotive Division results from price fluctuations and the

availability of non-ferrous metals and precious metals. Forward transactions are entered into to

limit these risks. No hedge accounting in accordance with IAS 39 is used for commodity price

risk.

Hedging relates to substantial volumes, such as the commodities aluminum and copper, as

well as the precious metals platinum, rhodium and palladium.

Commodity price risk within the meaning of IFRS 7 is presented using sensitivity analysis.

These show the effect on profit of changes in risk variables in the form of commodity prices.

If the commodity prices of the hedged metals had been 10% higher (lower) as of

December 31, 2007, profit would have been €158 million (previous year: €201 million) higher

(lower).

4.3.4 Fund price risk

The Spezialfonds (special funds) launched using surplus liquidity are subject in particular to

equity and bond price risk, which can arise from fluctuations in quoted market prices, stock

exchange indices and market rates of interest. The changes in bond prices resulting from

variations in the market rates of interest are quantified in sections 4.3.1 and 4.3.2, as are the

measurement of foreign currency and other interest rate risks arising from the special funds. As

a rule, we counter the risks arising from the special funds by ensuring a broad diversification of

products, issuers and regional markets when investing funds, as stipulated by our Investment

Guidelines. In addition, we use exchange rate hedges in the form of futures contracts when

market conditions are appropriate. The relevant measures are centrally coordinated by Group

Treasury and implemented in operations by the special funds’ risk management team.

As part of the presentation of market risk, IFRS 7 requires disclosures on how hypothetical

changes in risk variables affect the price of financial instruments. Potential risk variables here

are in particular quoted market prices or indices, as well as interest rate changes as bond price

parameters.

248


If share prices had been 10% higher (lower) as of December 31, 2007, equity would have been

€16 million (previous year: €178 million) higher (lower).

5. METHODS FOR MONITORING HEDGE EFFECTIVENESS

In the Volkswagen Group, hedge effectiveness is assessed prospectively using the critical terms

match method and using statistical methods in the form of a regression analysis. Retrospective

analysis of effectiveness uses effectiveness tests in the form of the dollar offset method or a

regression analysis.

Under the dollar offset method, the changes in value of the hedged item expressed in

monetary units are compared with the changes in value of the hedging instrument expressed in

monetary units.

Where regression analysis is used, the change in value of the hedged item is presented as an

independent variable, and that of the hedging instrument as a dependent variable. A hedge

relationship is classified as effective if it has a coefficient of determination of R² > 0.96 and a

slope factor b of between – 0.80 and – 1.25.

NOTIONAL AMOUNT OF DERIVATIVES

Remaining term

€ million

under one

year

within one

to five years

over five

years

Notional

amount

Dec. 31,

2007

Notional

amount

Dec. 31,

2006

Notional amount of hedging instruments

used in cash flow hedges:

Interest rate swaps 3,489 8,671 823 12,983 11,024

Currency forwards 14,453 6,467 – 20,920 20,215

Currency options 4,723 – – 4,723 6,412

Currency swaps 316 245 – 561 35

Notional amount of other derivatives

Interest rate swaps 10,411 23,099 584 34,094 30,654

Currency forwards 2,817 351 – 3,168 1,072

Currency swaps 2,039 – – 2,039 2,119

Cross-currency swaps 1,702 979 8 2,689 2,239

Commodity futures contracts 613 889 – 1,502 1,839

The hedged items in cash flow hedges are expected to be realized in accordance with the

maturity buckets of the hedges reported in the table.

The fair values of the derivatives are estimated using market data at the balance sheet date

as well as by appropriate valuation techniques. The following term structures were used for the

calculation:


>



in % EUR USD GBP JPY RUB CHF SEK

Interest rate

for six months 4.707 4.596 5.940 0.975 6.880 2.865 4.777

Interest rate

for one year 4.745 4.224 5.744 1.052 5.480 2.977 4.777

Interest rate

for five years 4.555 4.176 5.093 1.188 7.145 3.063 4.755

Interest rate

for ten years 4.720 4.660 5.013 1.665 7.590 3.345 4.897

30 Capital management

The goal of capital management is to ensure that the Group can effectively achieve its goals and

strategies in the interests of shareholders, employees and other stakeholders. In particular,

management focuses on generating the minimum return on invested assets in the Automotive

Division that is required by the capital markets, and on increasing the return on equity in the

Financial Services Division. In doing so, it aims to achieve the highest possible growth in the

value of the Group and its divisions for the benefit of all the Company’s stakeholder groups.

The Volkswagen Group’s financial target system focuses systematically on continuously and

sustainably increasing the value of the Company. In order to maximize the use of resources in

the Automotive Division and to measure the success of this, we have been using value

contribution, a control variable linked to the cost of capital, for a number of years.

The concept of value contribution not only allows overall performance to be measured in the

Automotive Division, but also in the individual business units, projects and products. In

addition, business units and product-specific investment projects can be managed operationally

and strategically using the value contribution.

31 Contingent liabilities

€ million Dec. 31, 2007 Dec. 31, 2006

Liabilities from guarantees 76 56

Liabilities from warranty contracts 27 893

Pledges on company assets as security for third-party liabilities 12 12

Other contingent liabilities 369 192

484 1.153

The previous contingent liabilities disclosed in connection with the disposal of the gedas Group

no longer apply due to contractual changes with the purchaser.

In the course of the acquisition of a 100% equity interest in LeasePlan Corporation N.V.,

Amsterdam, and the subsequent sale of 50% of the shares to two co-investors, Volkswagen AG

reached an agreement with the co-investors on put options entitling these investors to sell their

shares to Volkswagen AG. These put options can be exercised (a) at any time or (b) under certain

conditions within a fixed period. The price of the shares should be the higher of (a) the fair value

250


of the shares as calculated by an expert using a standard valuation method, and (b) the co-

investors' initial investment. The fair value of the put options is contained in Other liabilities.

The trust assets and liabilities of the savings and trust entities belonging to the South

American subsidiaries not included in the consolidated balance sheet amount to €620 million

(previous year: €591 million).

32 Litigation

Neither Volkswagen AG nor any of its Group companies is party to any legal or arbitration

proceedings that may have a material effect on the economic position of the Group, or have had

such an effect within the last two years. Equally, no such proceedings are foreseeable.

Appropriate provisions are established by the Group company concerned for any potential costs

arising from other legal or arbitration proceedings pending, or the company has adequate

insurance cover.

33 Other financial obligations

Payable Payable Payable

€ million 2008 2009 – 2012 from 2013

Total

Dec. 31,

2007

Total

Dec. 31,

2006

Purchase commitments in respect of

property, plant and equipment 1,526 451 – 1,977 1,604

intangible assets 127 41 – 168 209

investment property 1 – – 1 0

Obligations from

irrevocable credit commitments 1,898 – – 1,898 2,063

loan commitments to subsidiaries 71 – – 71 84

long-term leasing and rental contracts 250 595 1,264 2,109 1,926

Other financial obligations 476 1,151 305 1,932 179

Starting in fiscal year 2007, other financial obligations also relate to purchase volumes

contractually agreed for the next few years with the acquirer of the gedas group.


>



34 Auditors’ fees recognized as expenses

Under the provisions of the German Commercial Code (HGB), Volkswagen AG is obliged to

disclose the audit fees of the Group auditors in Germany that are recognized as expenses.

€ thousand 2007 2006

Audits of financial statements 4,751 4,401

Other assurance or valuation services 3,135 186

Tax advisory services 242 384

Other services 1,178 2,219

9,306 7,190

35 Total expense for the period

€ million 2007 2006

Cost of materials

Cost of raw materials, consumables and supplies,

purchased merchandise and services 72,340 66,935

Personnel expenses

Wages and salaries 11,722 14,240

Social security, post-employment and other

employee benefit costs 2,827 3,160

14,549 17,400

36 Average number of employees during the year

2007 2006

Performance-related wage-earners 162,013 165,056

Salaried staff 137,095 135,046

299,108 300,102

Apprentices 8,481 8,337

307,589 308,439

Vehicle-producing investments not fully consolidated 21,005 20,160

328,594 328,599

37 Events after the balance sheet date

There were no significant events up to February 18, 2008.

252


38 Related party disclosures in accordance with IAS 24

Related parties as defined by IAS 24 are natural persons and entities that Volkswagen AG has the

ability to control or on which it can exercise significant influence, or natural persons and

entities that have the ability to control or exercise significant influence on Volkswagen AG, or are

influenced by another related party of Volkswagen AG.

On March 28, 2007, Dr. Ing. h.c. F. Porsche AG held 30.93% of the voting rights of

Volkswagen AG and appointed two members of the Supervisory Board. All transactions with Dr.

Ing. h. c. F. Porsche AG itself and with other companies affiliated with Dr. Ing. h.c. F. Porsche AG

are conducted on an arm’s length basis.

On January 20, 2007, the State of Lower Saxony held 20.26% of the voting rights of

Volkswagen AG and also appointed two members of the Supervisory Board. Transactions with

private companies owned by the State of Lower Saxony are conducted on an arm's length basis.

All transactions with unconsolidated subsidiaries, joint ventures, associates and other

related parties are conducted on an arm's length basis.

Members of the Board of Management and Supervisory Board of Volkswagen AG are

members of supervisory and management boards of other companies with which Volkswagen

AG has relations in the normal course of business. All transactions with these companies are

conducted on an arm's length basis.

The amounts of the supplies and services transacted between consolidated companies of the

Volkswagen Group and related parties (unconsolidated subsidiaries, joint ventures, associates,

Dr. Ing. h. c. F. Porsche AG and other related parties) are presented in the following table:

RELATED PARTIES

Supplies and services

rendered

Supplies and services

received

€ million 2007 2006 2007 2006

Supervisory Board members 0 0 0 0

Group Board of Management 0 0 – 0

Unconsolidated subsidiaries 1,124 1,217 411 470

Joint ventures 2,717 2,160 284 328

Associates 0 243 3 42

Pension plans 1 0 0 0

Other related parties 2 25 41 46

Porsche 5,528 4,183 178 142


>



Receivables from Payables to

€ million 2007 2006 2007 2006

Supervisory Board members 0 0 4 3

Group Board of Management – 0 13 10

Unconsolidated subsidiaries 446 418 109 88

Joint ventures 1,497 1,472 17 111

Associates 1 58 0 4

Pension plans 0 1 0 0

Other related parties 0 38 0 1

Porsche 407 343 46 12

The Board of Management and Supervisory Board of the Volkswagen Group are related parties

within the meaning of IAS 24. The following benefits and remuneration were recorded for these

persons:

€ 2007 2006

Short-term benefits 19,936,903 16,063,254

Termination benefits 5,950,000 –

Post-employment benefits 1,647,415 2,846,554*

Other long-term benefits – –

Share-based payment 78,000 546,950

27,612,318 19,456,758

* Adjusted.

There are outstanding balances for bonuses of the Board of Management members in the

amount of €10,850,000 at the end of the fiscal year. The post-employment benefits relate to

additions to pension provisions for current members of the Board of Management. The

expenses shown above do not correspond to the definition of remuneration of members of the

Board of Management and the Supervisory Board in accordance with the German Corporate

Governance Code.

254


39 Notices and disclosure of changes regarding the ownership of voting rights in Volkswagen AG in accordance with the Wert- papierhandelsgesetz (WpHG – German Securities Trading Act)

PORSCHE

Dr. Ing. h.c. F. Porsche Aktiengesellschaft (now: Porsche Automobile Holding SE), Stuttgart,

Germany, notified us in accordance with section 21(1) of the WpHG that the share of voting

rights held by Dr. Ing. h.c. F. Porsche Aktiengesellschaft in Volkswagen Aktiengesellschaft,

Wolfsburg, Germany, exceeded the threshold of 30% on March 28, 2007 and amounted to

30.93% of the voting rights at this date (88,874,462 voting rights).

The following persons notified us in accordance with section 21(1) of the WpHG that their

share of the voting rights in Volkswagen AG in each case exceeded the threshold of 30% on

March 28, 2007 and in each case amounted to 30.93% (88,874,462 voting rights) at this date.

30.93% of this (88,874,462 voting rights) is attributable to each of them in accordance with

section 22(1) sentence 1 no. 1 of the WpHG. The names of the controlled companies via which

the voting rights are actually held and whose attributable share of the voting rights amounts to

3% or more are given in brackets:

> Porsche GmbH, Stuttgart/Germany; Familien Porsche-Daxer-Piëch Beteiligung GmbH,

Stuttgart/Germany; Familie Porsche Beteiligung GmbH, Stuttgart/Germany;

Ferdinand Piëch GmbH, Grünwald/Germany; Hans-Michel Piëch GmbH, Grünwald/Germany

(Dr. Ing. h.c. F. Porsche AG, Stuttgart/Germany),

> Louise Daxer-Piëch GmbH, Stuttgart/Germany; Ferdinand Alexander Porsche GmbH,

Stuttgart/Germany; Gerhard Porsche GmbH, Stuttgart/Germany

(Dr. Ing. h.c. F. Porsche AG, Stuttgart/Germany; Familien Porsche-Daxer-Piëch Beteili-

gung GmbH, Stuttgart/Germany),

> Hans-Peter Porsche GmbH, Stuttgart/Germany; Wolfgang Porsche GmbH, Stuttgart/Germany

(Dr. Ing. h.c. F. Porsche AG, Stuttgart/Germany; Familie Porsche Beteiligung GmbH, Stutt-

gart/Germany),

> Louise Daxer-Piëch GmbH, Salzburg/Austria

(Dr. Ing. h.c. F. Porsche AG, Stuttgart/Germany; Familien Porsche-Daxer-Piëch Beteiligung

GmbH, Stuttgart/Germany; Louise Daxer-Piëch GmbH, Stuttgart/Germany),

> Prof. Ferdinand Alexander Porsche GmbH, Salzburg/Austria


gung GmbH, Stuttgart/Germany; Ferdinand Alexander Porsche GmbH, Stuttgart/

Germany),

> Gerhard Anton Porsche GmbH, Salzburg/Austria


gung GmbH, Stuttgart/Germany; Gerhard Porsche GmbH, Stuttgart/Germany),

> Ing. Hans-Peter Porsche GmbH, Salzburg/Austria


gart/Germany; Hans-Peter Porsche GmbH, Stuttgart/Germany),

> Mag. Josef Ahorner, Austria; Mag. Louise Kiesling, Austria; Prof. Ferdinand Alexander

Porsche, Austria; Prof. Ferdinand Alexander Porsche, Austria; Mark Philipp Porsche, Austria;

Kai-Alexander Porsche, Austria; Dr. F. Oliver Porsche, Austria; Gerhard Anton Porsche, Austria


gung GmbH, Stuttgart/Germany; Louise Daxer-Piëch GmbH, Stuttgart/Germany; Ferdinand


>



Alexander Porsche GmbH, Stuttgart/Germany; Gerhard Porsche GmbH, Stuttgart/

Germany; Louise Daxer-Piëch GmbH, Salzburg/Austria; Prof. Ferdinand Alexander

Porsche GmbH, Salzburg/Austria; Gerhard Anton Porsche GmbH, Salzburg/Austria;

Ferdinand Porsche Holding GmbH, Salzburg/Austria; Ferdinand Porsche Privatstiftung,

Salzburg/Austria),

> Hans-Peter Porsche, Austria; Peter Daniell Porsche, Austria


gart/Germany; Hans-Peter Porsche GmbH, Stuttgart/Germany; Ing. Hans-Peter Por-

sche GmbH, Salzburg/Austria; Familie Porsche Holding GmbH, Salzburg/Austria;

Familie Porsche Privatstiftung, Salzburg/Austria),

> Dr. Wolfgang Porsche, Germany

(Dr. Ing. h.c. F. Porsche AG, Stuttgart/Germany; Familie Porsche Beteiligung GmbH,

Stuttgart/Germany; Wolfgang Porsche GmbH, Stuttgart/Germany; Hans-Peter Porsche GmbH,

Stuttgart/Germany; Ing. Hans-Peter Porsche GmbH, Salzburg/Austria; Familie Porsche

Holding GmbH, Salzburg/Austria; Familie Porsche Privatstiftung, Salzburg/Austria),

> Ferdinand Porsche Privatstiftung, Salzburg/Austria



Alexander Porsche GmbH, Stuttgart/Germany; Gerhard Porsche GmbH, Stuttgart/Germany;

Louise Daxer-Piëch GmbH, Salzburg/Austria; Prof. Ferdinand Alexander Porsche GmbH,

Salzburg/Austria; Gerhard Anton Porsche GmbH, Salzburg/Austria;

Ferdinand Porsche Holding GmbH, Salzburg/Austria),

> Ferdinand Porsche Holding GmbH, Salzburg/Austria





Salzburg/Austria; Gerhard Anton Porsche GmbH, Salzburg/Austria),

> Familie Porsche Privatstiftung, Salzburg/Austria


Stuttgart/Germany; Hans-Peter Porsche GmbH, Stuttgart/Germany; Ing. Hans-Peter

Porsche GmbH, Salzburg/Austria; Familie Porsche Holding GmbH, Salzburg/Austria),

> Familie Porsche Holding GmbH, Salzburg/Austria



sche GmbH, Salzburg/Austria),

> Dipl.-Ing. Dr. h.c. Ferdinand Piëch GmbH, Salzburg/Austria

(Dr. Ing. h.c. F. Porsche AG, Stuttgart/Germany; Ferdinand Piëch GmbH, Grünwald/

Germany),

> Dr. Hans Michel Piëch GmbH, Salzburg/Austria

(Dr. Ing. h.c. F. Porsche AG, Stuttgart/Germany; Hans Michel Piëch GmbH, Grünwald/

Germany) and

256


> Dr. Ferdinand Piëch, Austria


Germany; Dipl.-Ing. Dr. h.c. Ferdinand Piëch GmbH, Salzburg/Austria).

The following persons notified us in accordance with section 21(1) of the WpHG that their share

of the voting rights in Volkswagen AG in each case also exceeded the threshold of 30% on






> Porsche GmbH, Salzburg/Austria

(Dr. Ing. h.c. F. Porsche AG, Stuttgart/Germany; Porsche GmbH, Stuttgart/Germany) and

> Porsche Holding Gesellschaft m.b.H., Salzburg/Austria

(Dr. Ing. h.c. F. Porsche AG, Stuttgart/Germany; Porsche GmbH, Stuttgart/Germany;

Porsche GmbH, Salzburg/Austria).

Dr. Hans Michel Piëch, Austria, notified us in accordance with section 21(1) of the WpHG that

his share of the voting rights in Volkswagen AG also exceeded the threshold of 30% on

March 28, 2007 and amounted to 30.94% (88,886,932 votes) at this date. Of this, 30.93% of

the voting rights (88,874,462 voting rights) is attributable to him in accordance with section

22(1) sentence 1 no. 1 of the WpHG. The voting rights attributable to him are held via the

following companies controlled by him, whose share of the voting rights in Volkswagen AG

amounts to 3% or more in each case:

> Dr. Ing. h.c. F. Porsche AG, Stuttgart/Germany; Hans Michel Piëch GmbH, Grünwald/

Germany; Dr. Hans Michel Piëch GmbH, Salzburg/Austria.

STATE OF LOWER SAXONY

Hannoversche Beteiligungsgesellschaft mbH, Hanover, Germany, notified us in accordance

with section 41(4a) of the Wertpapierhandelsgesetz (WpHG – German Securities Trading Act)

that it held 20.19% of the voting rights (corresponding to 57,953,870 voting shares) of

Volkswagen AG, Wolfsburg, Germany, on January 20, 2007.

The State of Lower Saxony, Hanover, Germany, notified us in accordance with section 41(4a)

of the WpHG (German Securities Trading Act) that it held 20.26% of the voting rights

(corresponding to 58,155,310 voting shares) of Volkswagen AG, Wolfsburg, Germany, on

January 20, 2007. Of this amount, 20.19% (corresponding to 57,953,870) of the voting rights

are attributable to the State of Lower Saxony via Hannoversche Beteiligungsgesellschaft mbH,

Hanover, Germany, in accordance with section 22(1) sentence 1 no. 1 of the WpHG.

The State of Lower Saxony also notified us on January 28, 2008 that it held a total of

58,522,310 ordinary shares as of December 31, 2007. It held 440 VW ordinary shares directly

and 58,521,870 ordinary shares indirectly via Hannoversche Beteiligungsgesellschaft mbH

(HanBG), which is owned by the State of Lower Saxony.

40 German Corporate Governance Code

On December 20, 2007, the Board of Management and Supervisory Board of Volkswagen AG

issued their declaration of conformity with the German Corporate Governance Code as required


>



by section 161 of the Aktiengesetz (AktG – German Stock Corporation Act) and made it

permanently available to the shareholders of Volkswagen AG on the Company's website at

www.volkswagen.com/ir

On December 5, 2007, the Board of Management and Supervisory Board of AUDI AG

likewise issued their declaration of conformity with the German Corporate Governance Code

and made it permanently available to the shareholders at www.audi.com

41 Remuneration of the Board of Management and the Supervisory Board

€ 2007 2006

Board of Management remuneration

Non-performance-related remuneration 4,810,736 5,009,987

Performance-related remuneration 10,850,000 8,210,000

Stock options exercised or subscribed 837,150 546,950

Fair value of stock options held at reporting date 7,950,150 1,929,950

Supervisory Board remuneration

Fixed remuneration components 307,192 306,142

Variable remuneration components 3,968,975 2,537,125

Loans to Supervisory Board members 21,218 18,160

The fixed remuneration also includes differing levels of remuneration for the assumption of

appointments at Group companies as well as non-cash benefits, which consist in particular of

the use of company cars and the grant of insurance cover. The additional annual variable amount

paid to each member of the Board of Management contains annually recurring components tied

to the business success of the Company. It is primarily oriented on the results achieved and the

financial position of the Company.

On December 31, 2007 the pension provisions for members of the Board of Management

amounted to €30,334,447 (previous year: €21,907,510). Current pensions are index-linked in

accordance with the index-linking of the highest collectively agreed salary insofar as the

application of section 16 of the Gesetz zur Verbesserung der betrieblichen Altersversorgung

(BetrAVG – German Company Pension Act) does not lead to a larger increase. The members of

the Board of Management are entitled to the retirement pension in the event of disability, and to

payment of their normal remuneration for six months in the event of illness. Surviving

dependents receive a widow’s pension of 66 2/3% and 20% orphan’s pension per child based

on the pension of the former member of the Board of Management.

Retired members of the Board of Management and their surviving dependents received

€8,688,685 (previous year: €10,189,421). Provisions for pensions for this group of people were

recognized in the amount of €107,971,788 (previous year: €118,976,976). Loans of €21,218 have been granted to members of the Supervisory Board (amount

redeemed in 2007: €17,778). The loans generally bear interest at a rate of 4.0% and have an

agreed term of up to 12.5 years.

The individual remuneration of the members of the Board of Management and the

Supervisory Board is explained in the Remuneration Report in the Management Report (see

page 100).

258


Automotive Division

Name, location

Equity

interest in %

VOLKSWAGEN AG, Wolfsburg

Volkswagen Sachsen GmbH, Zwickau 100.00

AUDI BRUSSELS S.A., Brussels/Belgium 100.00

VOLKSWAGEN SLOVAKIA, a.s., Bratislava/Slovak Republic 100.00

SITECH Sitztechnik GmbH, Wolfsburg 100.00

Volkswagen Navarra, S.A., Arazuri (Navarra)/Spain 100.00

AUTOEUROPA-AUTOMÓVEIS LDA., Quinta do Anjo/Portugal 100.00

Volkswagen Motor Polska Sp.z o.o., Polkowice/Poland 100.00

Volkswagen-Audi España, S.A., El Prat de Llobregat (Barcelona)/Spain 100.00

Volkswagen Original Teile Logistik GmbH & Co. KG, Baunatal 52.76

VOLKSWAGEN Group United Kingdom Ltd., Milton Keynes/United Kingdom 100.00

Groupe VOLKSWAGEN France s.a., Villers-Cotterêts/France 100.00

Volkswagen Logistics GmbH & Co. OHG, Wolfsburg 100.00

VW Kraftwerk GmbH, Wolfsburg 100.00

Automobilmanufaktur Dresden GmbH, Dresden 100.00

Volkswagen Poznan Sp.z o.o., Poznan/Poland 100.00

Volkswagen Group Sverige Aktiebolag, Södertälje/Sweden 100.00

Auto 5000 GmbH, Wolfsburg 100.00

VOLKSWAGEN GROUP OF AMERICA, INC., Auburn Hills, Michigan/USA 100.00

Volkswagen Group Canada Inc., Ajax, Ontario/Canada 100.00

VOLKSWAGEN Group Japan K.K., Toyohashi/Japan 100.00

Volkswagen Tokyo K.K., Tokyo/Japan 100.00

VOLKSWAGEN GROUP AUSTRALIA PTY LTD., Botany/Australia 100.00

VOLKSWAGEN Group RUS OOO, Kaluga/Russia 100.00

OOO VOLKSWAGEN Rus, Kaluga/Russia 80.10

AUDI AG, Ingolstadt 99.14

AUDI HUNGARIA MOTOR Kft., Györ/Hungary 100.00

Audi Volkswagen Korea Ltd., Seoul/Korea 100.00

Audi Volkswagen Middle East FZE, Dubai 100.00

Automobili Lamborghini Holding S.p.A., Sant'Agata Bolognese/ltaly 100.00

VOLKSWAGEN GROUP ITALIA S.P.A. , Verona/Italy 100.00

Audi Japan K.K., Tokyo/Japan 100.00

Audi Canada Inc., Ajax, Ontario/Canada 100.00

Audi of America, LLC, Auburn Hills, Michigan/USA 100.00

Significant Group Companies


>



Automotive Division

Name, location

Equity

interest in %

SEAT, S.A., Martorell, Barcelona/Spain 100.00

SEAT Deutschland GmbH, Mörfelden-Walldorf 100.00

Gearbox del Prat, S.A., El Prat de Llobregat (Barcelona)/Spain 100.00

ŠKODA AUTO a.s., Mladá Boleslav/Czech Republic 100.00

ŠkodaAuto Deutschland GmbH, Weiterstadt 100.00

ŠKODA AUTO Slovensko s.r.o., Bratislava/Slovak Republic 100.00

ŠKODA AUTO INDIA PRIVATE LIMITED, Aurangabad/lndia 100.00

ŠKODA AUTO Polska, S.A., Poznan/Poland 51.00

BENTLEY MOTORS LIMITED, Crewe/United Kingdom 100.00

Volkswagen de Mexico, S.A. de C.V., Puebla/Pue./Mexico 100.00

Volkswagen do Brasil Ltda., São Bernardo do Campo, SP/Brazil 100.00

Volkswagen Argentina S.A., Buenos Aires/Argentina 100.00

Volkswagen of South Africa (Pty.) Ltd., Uitenhage/South Africa 100.00

Shanghai-Volkswagen Automotive Company Ltd., Shanghai/P.R. China1 50.00

FAW-Volkswagen Automotive Company, Ltd., Changchun/P.R. China1 40.00

Volkswagen (China) Investment Company Ltd., Beijing/ P.R. China 100.00

Volkswagen Group Services S.A., Brussels/Belgium 100.00

Volkswagen International Finance N.V., Amsterdam/The Netherlands 100.00

MAN Aktiengesellschaft, Munich2 28.67

SCANIA Aktiebolag, Södertälje/Sweden3 20.59

1 Joint ventures are accounted for using the equity method.

2 The interest in MAN conveys 29.9% of the voting rights and thus differs from the equity interest. The company is accounted for

using the equity method.

3 The interest in SCANIA conveys 37.44% of the voting rights and thus differs from the equity interest. The company is accounted for

using the equity method.

260


Financial Services Division

Name, location

Equity

interest in %

VOLKSWAGEN FINANCIAL SERVICES AG, Braunschweig 100.00

Volkswagen Leasing GmbH, Braunschweig 100.00

Volkswagen Bank GmbH, Braunschweig 100.00

Volkswagen Reinsurance AG, Braunschweig 100.00

Volkswagen-Versicherungsdienst GmbH, Wolfsburg 100.00

VOLKSWAGEN FINANCE, S.A., Alcobendas (Madrid)/Spain 100.00

Volkswagen Finance S.A., Villers-Cotterêts/France 100.00

Volkswagen Financial Services (UK) Ltd., Milton Keynes/United Kingdom 100.00

Volkswagen Financial Services N.V., Amsterdam/The Netherlands 100.00

VOLKSWAGEN FINANCIAL SERVICES JAPAN LTD., Tokyo/Japan 100.00

ŠkoFIN s.r.o., Prague/Czech Republic 100.00

Global Mobility Holding B.V., Amsterdam/The Netherlands1, 2

50.00

LeasePlan Corporation N.V., Amsterdam/The Netherlands –

Volkswagen Pon Financial Services B.V., Amersfoort/The Netherlands1 60.00

VW CREDIT, INC., Wilmington, Delaware/USA 100.00

VOLKSWAGEN LEASING SA DE CV, Puebla/Mexico 100.00

Financial services companies in Brazil, São Paulo/Brazil 100.00

Financial services companies in Argentina, Buenos Aires/Argentina 100.00

1 Joint ventures are accounted for using the equity method.

2 Global Mobility Holding B.V., Amsterdam, holds all shares of LeasePlan Corporation N.V., Amsterdam.

DIVISIONS COR PORATE GOVERNANC E MANAGEMENT R EPORT F I NANC IAL STATEMENTS 2007 ADDITIONAL I N FORM ATION 261

>>



To the best of our knowledge, and in accordance with the applicable reporting principles, the

consolidated financial statements give a true and fair view of the assets, liabilities, financial

position and profit or loss of the Group, and the Group management report includes a fair

review of the development and performance of the business and the position of the Group,

together with a description of the principal opportunities and risks associated with the expected

development of the Group.






Responsibility Statement

262


On completion of our audit, we issued the following unqualified auditors’ report dated

February 19, 2008. This report was originally prepared in German. In case of ambiguities, the

German version takes precedence:

“Auditors’ report

We have audited the consolidated financial statements prepared by VOLKSWAGEN

AKTIENGESELLSCHAFT, Wolfsburg, comprising the income statement, the balance sheet and

the statements of recognized income and expense and cash flows as well as the notes to the

consolidated financial statements, together with the group management report, which is

combined with the management report of the Company for the business year from January 1 to

December 31, 2007. The preparation of the consolidated financial statements and the

combined management report in accordance with the IFRSs, as adopted by the EU, and the

additional requirements of German commercial law pursuant to § (article) 315a Abs.

(paragraph) 1 HGB ("Handelsgesetzbuch": German Commercial Code) are the responsibility of

the Company’s Board of Management. Our responsibility is to express an opinion on the

consolidated financial statements and on the combined management report based on our audit.

We conducted our audit of the consolidated financial statements in accordance with § 317

HGB and German generally accepted standards for the audit of financial statements

promulgated by the Institut der Wirtschaftsprüfer (Institute of Public Auditors in Germany)

(IDW). Those standards require that we plan and perform the audit such that misstatements

materially affecting the presentation of the net assets, financial position and results of

operations in the consolidated financial statements in accordance with the applicable financial

reporting framework and in the combined management report are detected with reasonable

assurance. Knowledge of the business activities and the economic and legal environment of the

Group and expectations as to possible misstatements are taken into account in the

determination of audit procedures. The effectiveness of the accounting-related internal control

system and the evidence supporting the disclosures in the consolidated financial statements and

the combined management report are examined primarily on a test basis within the framework

of the audit. The audit includes assessing the annual financial statements of those entities

included in consolidation, the determination of the entities to be included in consolidation, the

accounting and consolidation principles used and significant estimates made by the Company’s

Board of Management, as well as evaluating the overall presentation of the consolidated

financial statements and the combined management report. We believe that our audit provides a

reasonable basis for our opinion.

Our audit has not led to any reservations.

Auditors’ Report


>



In our opinion, based on the findings of our audit, the consolidated financial statements comply

with the IFRSs as adopted by the EU and the additional requirements of German commercial

law pursuant to Article 315a paragraph 1 HGB and give a true and fair view of the net assets,

financial position and results of operations of the Group in accordance with these

requirements. The combined management report is consistent with the consolidated financial

statements and as a whole provides a suitable view of the Group’s position and suitably presents

the opportunities and risks of future development.“

Hanover, February 19, 2008

PricewaterhouseCoopers

Aktiengesellschaft

Wirtschaftsprüfungsgesellschaft

Prof. Dr. Norbert Winkeljohann Harald Kayser

Wirtschaftsprüfer Wirtschaftsprüfer

264

Datei: 05_Financial statements VW AG_01.03.08.doc; Gespeichert von df60pec am 01.03.2008 7:00

€ million Note Dec. 31, 2007 Dec. 31, 2006

Assets

Fixed assets 1

Intangible assets 210 243

Tangible assets 3,956 4,666

Long-term financial assets 22,906 18,674

27,072 23,583

Current assets

Inventories 2 3,189 2,785

Receivables and other assets 3 12,184 10,641

Securities 4 1,343 2,378

Cash-in-hand and bank balances 4,590 6,193

21,306 21,997

Prepaid expenses 54 22

Total assets 48,432 45,602


Equity

Subscribed capital 5 1,015 1,004

Ordinary shares 746

Preferred shares 269

Contingent capital 116

Capital reserves 6 5,142 4,942

Revenue reserves 7 4,522 3,802


11,424 10,254

Special tax-allowable reserves 8 75 81

Provisions 9 21,336 18,849

Liabilities 10 15,595 16,418

Deferred income 2 –

Total equity and liabilities 48,432 45,602

Balance Sheet of Volkswagen AG as of December 31, 2007


>



€ million Note 2007 2006

Sales 11 55,218 53,036

Cost of sales 53,652 54,238

Gross profit on sales + 1,566 – 1,202

Selling expenses 3,226 3,377

General and administrative expenses 637 602

Other operating income 12 3,443 2,844

Other operating expenses 13 2,134 1,669

Financial result 14 + 4,185 + 5,216

Write-downs of long-term financial assets and securities classified as current assets 386 1,165

Result from ordinary activities + 2,811 + 45

Taxes on income 1,356 – 900


Income Statement of Volkswagen AG for the Period January 1 to December 31, 2007

266


Financial statements in accordance with the German Commercial Code

The annual financial statements of Volkswagen AG have been prepared in accordance with the

provisions of the Handelsgesetzbuch (HGB – German Commercial Code) and comply with the

provisions of the Aktiengesetz (AktG – German Stock Corporation Act).

To enhance the clarity of presentation, we have combined individual items of the balance

sheet and the income statement. These items are disclosed separately in the notes. The income

statement uses the cost of sales (function of expense) format to enable better international

comparability.

Volkswagen AG is a vertically integrated energy company within the meaning of section 3 no.

38 of the Energiewirtschaftsgesetz (EnWG – German Energy Industry Act) and is therefore

subject to the provisions of the EnWG. In the electricity sector, both Volkswagen AG and a

subsidiary carry out the functions of generation and sales as well as electricity distribution. To

prevent discrimination and cross-subsidies, separate accounts must as a rule be maintained for

these functions in accordance with section 10(3) of the EnWG. In addition, a balance sheet and

income statement that comply with the provisions contained in section 10(1) of the EnWG must

be prepared for each area of activity. (Unbundling requirement in internal accounting systems).

As Volkswagen AG’s electricity distribution activities (site network) do not serve the purpose of

general provision and are also extremely insignificant, Volkswagen AG has not reported these

activities separately and has limited itself to preparing a separate presentation of its other

activities within the electricity sector in accordance with the purpose of the EnWG to prevent

discrimination and cross-subsidies.

The list of all shareholdings can be downloaded from the electronic companies register at

www.unternehmensregister.de and from www.volkswagenag.com/ir under the heading

“Mandatory Publications” and the menu item “Annual Reports”.

Declaration on the German Corporate Governance Code in accordance with section 161 of the AktG/section 285 no. 16 of the HGB

The Board of Management and Supervisory Board of Volkswagen AG issued the declaration of

conformity in accordance with section 161 of the AktG on December 20, 2007.

The declaration of conformity has been made permanently available at

www.volkswagenag.com/ir

Significant events in the fiscal year

As part of the continued realignment of our foreign equity investments, we contributed the

shares in the subsidiaries Škoda and VW Group Rus at their fair values amounting to a total of

€924 million to our intermediate holding company in the Netherlands. This generated a book

gain of €69 million, which was reported in other income from investments.

Notes to the Annual Financial Statements of Volks-wagen AG for the Period ended December 31, 2007


>



In the course of the restructuring of our equity investments in Brazil, the Truck & Bus division

was spun off from VW do Brasil and contributed at its fair value of €496 million to the newly

formed VW Caminhões e Ônibus. The attributable gross book value and the write-down

recognized in previous years were recorded as disposals.

In addition, the financial services activities in Brazil were restructured and bundled

together in VW Financial Services.

Our equity investment in the Belgian company VW Group Services was increased by €1,150

million.

A further €840 million was invested in long-term investments.

Accounting policies

In most cases, the accounting policies applied in the previous year were retained. Any changes

in specific instances are individually addressed in the following.

Intangible assets are carried at cost and amortized over three to five years using the straight-

line method. Grants paid for third-party assets are capitalized as purchased rights to use and

amortized over five years.

Tangible assets are carried at cost and reduced by depreciation. Investment grants are

deducted from cost.

Production costs are recognized on the basis of directly attributable material and labor

costs, as well as proportionate indirect material and labor costs, including depreciation and

amortization. Administrative cost components are not included.

Depreciation is based primarily on the following useful lives derived from the official tax

depreciation tables:

> Buildings: 25 – 50 years

> Leasehold improvements: 10 – 25 years

> Technical equipment and machinery: 5 – 12 years

> Operating and office equipment

(including special tools and devices): 3 – 14 years

To the extent allowed by tax law, depreciation of movable items of tangible assets is initially

charged using the declining balance method, and subsequently using the straight-line method,

and also reflects the use of assets in multi-shift operation.

Additions of movable assets are depreciated ratably in the year of acquisition.

Low-value assets are written off in full in the year of acquisition and derecognized. In

addition, certain items of operating and office equipment with individual purchase costs of up to

€1,500 are treated as disposals when their standard useful life has expired.

268


The differences between the carrying amounts required by the HGB and the lower carrying

amounts allowed under tax law are recorded in the special tax-allowable reserves presented

between equity and liabilities in the balance sheet.

Shares in affiliated companies and other equity investments are carried at the lower of cost

and net realizable value.

Long-term investments are carried at cost.

Non- or low-interest-bearing loans are carried at their present value; other loans are carried

at their principal amount.

Raw materials, consumables and supplies, and merchandise, carried in inventories are

measured at the lower of average cost and replacement cost.

In addition to direct materials and direct labor costs, the carrying amount of work in

progress also includes proportionate indirect materials and labor costs, including depreciation

in the amount required under tax law.

Adequate valuation allowances take account of all identifiable storage and inventory risks.

Receivables and other assets are carried at their principal amounts. Valuation allowances

are recognized for identifiable specific risks.

Receivables due after more than one year are carried at their present value at the balance

sheet date by applying an interest rate to match the maturity.

Receivables denominated in foreign currencies are translated at the exchange rate

prevailing at the date of initial recognition. A lower exchange rate at the balance sheet date

results in the remeasurement of the receivable at a lower carrying amount, with the difference

recognized in the income statement; higher exchange rates at the balance sheet date

(remeasurement gains) are not recognized. Hedged receivables are not remeasured at the

closing rate.

Purchased foreign currency and interest rate options are carried at the lower of cost or fair

value until maturity.

Securities classified as current assets are carried at the lower of cost or fair value.

Adequate provisions are recognized for identifiable risks and uncertain obligations on the

basis of prudent business judgment. Provisions cover all identifiable risks of future settlement.

Provisions for pensions and similar obligations are carried at the actuarial present value

computed using the German entry age normal method and reflect current mortality tables. A

discount rate of 5.5% was used for the first time in 2007. The previous discount rate was 6%.

This change in the discount rate, which reflects current market developments, reduced

earnings by €495 million in the fiscal year.


>



Since fiscal year 2001, pension obligations relating to employees covered by collective wage

agreements have been linked to a pension fund model.

Provisions for jubilee payments are discounted at 5.5% per annum, reflecting tax

recognition and measurement provisions.

Provisions for obligations under partial retirement arrangements are discounted to the

present value at a real discount rate of 3.2%.

Provisions for warranty obligations are recognized on the basis of the historical or estimated

probability of claims affecting vehicles delivered.

Currency forwards are measured by comparing the agreed rate with the forward rate for the

same maturity at the balance sheet date. A provision is recognized for any resulting unrealized

loss. Any positive gains (remeasurement gains) are not recognized. Gains and losses are not

offset. Measurement gains or losses are discounted to the present value.

Liabilities are carried at their redemption or settlement amount.

Liabilities denominated in foreign currencies are translated at the exchange rate prevailing

at the date of initial recognition. A higher exchange rate at the balance sheet date results in the

remeasurement of the receivable at a higher carrying amount, with the difference recognized in

the income statement. Lower exchange rates at the balance sheet date (remeasurement gains)

are not recognized.

The amount of contingent liabilities disclosed corresponds to the liable amount.

In the income statement, the allocation of expenses to the cost of sales, selling and general

and administrative functions is based on cost accounting principles.

Cost of sales contains all expenses relating to the purchase of materials and the production

function, the costs of merchandise, the cost of research and development, and warranties and

product liability expenses.

Selling expenses include personnel and non-personnel operating costs of our sales and

marketing activities, as well as shipping, advertising, sales promotion, market research and

customer service costs.

General and administrative expenses include personnel and non-personnel operating costs

of the administrative functions.

Other taxes are allocated to the consuming functions.

270


Foreign currency translation

Transactions denominated in foreign currencies are translated at the exchange rates prevailing

at the transaction dates or at agreed exchange rates. Expected exchange rate losses at the

balance sheet date are reflected in the measurement of the items. Equity investments are

translated at the rate prevailing at the date of acquisition.

To hedge future cash flows – primarily from expected future sales, purchases of materials

and credit transactions – against currency and interest rate fluctuations, Volkswagen AG uses

derivatives such as currency forwards and options, including structured options, as well as

interest-rate hedges, such as caps. Such transactions are measured in accordance with the

imparity principle (under which expected or unrealized losses must be recognized, but the

recognition of unrealized gains is prohibited). Assets or liabilities hedged by cross-currency

swaps and currency forwards are translated at the contractually agreed rates at the time of

initial recognition.

Balance Sheet Disclosures

(1) FIXED ASSETS

The classification of the assets combined in the balance sheet and their changes during the year

are presented on pages 272 to 273. The carrying amount of fixed assets is €27,072 million at the

balance sheet date. Fixed assets are composed of intangible assets, tangible assets and long-

term financial assets.

Capital expenditures amounted to:

€ million 2007 2006


Tangible assets 1,058 869

Long-term financial assets 6,841* 7,796

Total 7,952 8,739

* including €1,848 million of additions relating to the contribution of further shares in affiliated companies via Volkswagen

International Finance N.V. to Global Automotive C.V., Amsterdam, our intermediate holding company for our foreign equity

investments. A further €834 million relates to the restructuring of our equity investment in Brazil.


>



Depreciation, amortization and write-downs were charged on:

€ million 2007 2006


Tangible assets 1,742 1,940

Long-term financial assets 364 1,165

Total 2,193 3,189

As well as the above-mentioned restructuring measures, the additions to shares in affiliated

companies and other equity investments primarily relate to capital contributions at VW Group

Services S.A., VW Financial Services AG, AUDI AG and VW of America, the purchase of shares in

MAN AG and Scania AB as well as newly formed companies in India and Russia.

Most of the disposals of shares in affiliated companies result from the contribution of

companies to the Dutch intermediate holding company and from the restructuring in Brazil.

Volkswagen AG invested a further €840 million in long-term investments in 2007.

Long-term investments also include bonds issued by an affiliated company in the amount of

€1 million. They also include the shares in securities investment funds held by Volkswagen

Pension Trust e. V. in trust for Volkswagen AG amounting to €1,865 million. These represent the

values of employee Time Assets transferred to the Pension Trust and the contribution of the

annual benefit expense to the pension fund.

Reversals of write-downs of long-term financial assets relate almost exclusively to the

carrying amount of the investment in VW do Brasil.

272


STATEMENT OF CHANGES IN FIXED ASSETS OF VOLKSWAGEN AG

Gross carrying amounts

€ million

Cost

Jan. 1, 2007

Additions Transfers Disposals Cost

Dec. 31, 2007

Intangible assets

Concessions, industrial and similar rights and assets

and licenses in such rights and assets 500 53 1 20 534

500 53 1 20 534

Tangible assets

Land, land rights and buildings and buildings on

third-party land 4,454 24 6 7 4,477

Technical equipment and machinery 9,590 245 86 371 9,550

Other equipment, operating and office equipment 13,057 542 86 429 13,256

Payments on account and assets under construction 236 247 – 179 8 296

27,337 1,058 – 1 815 27,579

Long-term financial assets

Shares in affiliated companies 13,258 5,067* 0 2,638* 15,687

Loans to affiliated companies 138 21 – 2 157

Other equity investments 4,587 913 0 101 5,399

Loans to other investees and investors

7 0 – 0 7

Long-term investments 2,773 840 – 30 3,583

Other loans 79 – – 0 79

20,842 6,841 – 2,771 24,912

Total fixed assets 48,679 7,952 – 3,606 53,025

* Thereof from the transfer to Global Mobility Holding: additions €1,848 million, disposals €1,779 million.


>



Depreciation, amortization and write-downs

Cumulative

depreciation,

amortization

and write-

downs

Jan. 1, 2007

Depreciation,

amortization

and write-

downs in

current year

Disposals Transfers Reversals of

write-downs

Cumulative

depreciation,

amortization

and write-

downs

Dec. 31, 2007

Carrying

amounts

Dec. 31, 2007

Carrying

amounts

Dec. 31, 2006

257 87 21 1 – 324 210 243

257 87 21 1 – 324 210 243

3,293 103 4 – 2 – 3,390 1,087 1,161

8,664 439 366 0 – 8,737 813 926

10,714 1,200 419 1 – 11,496 1,760 2,343

– – – – – – 296 236

22,671 1,742 789 – 1 – 23,623 3,956 4,666

2,000 364 154 – 372 1,838 13,849 11,258

0 – – – 0 0 157 138

166 – – – – 166 5,233 4,421

2 – 0 – 0 2 5 5

– – – – – – 3,583 2,773

0 – 0 – 0 0 79 79

2,168 364 154 – 372 2,006 22,906 18,674

25,096 2,193 964 – 372 25,953 27,072 23,583

274


(2) INVENTORIES

€ million Dec. 31, 2007 Dec. 31, 2006

Raw materials, consumables and supplies 554 506

Work in progress 637 552

Finished goods and merchandise 1,939 1,718

Payments on account 59 9

3,189 2,785

(3) RECEIVABLES AND OTHER ASSETS

€ million Dec. 31, 2007 Dec. 31, 2006

Trade receivables 1,143 1,118

due after more than one year (–) (0)

Receivables from affiliated companies 8,429 7,031

thereof trade receivables ( 1,121) (952)

due after more than one year (1,483) (811)

Receivables from other investees and investors 319 305

thereof trade receivables (166) (69)

due after more than one year (–) (15)

Other assets 2,293 2,187

due after more than one year (1,093) (1,133)

12,184 10,641

In addition to trade receivables, receivables from affiliated companies are composed primarily

of receivables relating to profit distributions, including income tax allocations, and short- and

medium-term loans.

Other assets primarily include tax and cost reimbursements that are not yet due (€1,480

million and €210 million respectively), rights from foreign currency option transactions

entered into (€93 million) and deferred interest receivables (€20 million).

(4) SECURITIES

€ million Dec. 31, 2007 Dec. 31, 2006

Other securities 1,343 2,378

1,343 2,378


>



(5) SUBSCRIBED CAPITAL

The subscribed capital of Volkswagen AG is composed of no-par value bearer shares with a

notional value of €2.56 each.

Because of the capital increase implemented in fiscal year 2007 due to the exercise of

conversion rights from the fourth, fifth, sixth and seventh tranches of the stock option plan, the

subscribed capital increased by a total of €11 million to €1,015 million.

The subscribed capital is composed of 291,337,267 no-par value ordinary shares and

105,238,280 preferred shares.

The Annual General Meeting on May 3, 2006 resolved to create authorized capital of up to

€90 million, expiring on May 2, 2011, to issue new no-par value ordinary bearer shares.

According to the resolution adopted by the Annual General Meeting on April 22, 2004, further

authorized capital of up to €400 million has been created that expires on April 21, 2009.

There is also contingent capital of €100 million to issue up to 39,062,500 ordinary and/or

preferred shares. This contingent capital will only be implemented to the extent that the holders

of convertible bonds issued up to April 21, 2009 exercise their conversion rights.

Stock option plan

The Board of Management, with the consent of the Supervisory Board, exercised the

authorization given by the Annual General Meeting on April 16, 2002 to implement a stock

option plan. Contingent capital of €16.5 million was created for this purpose. The contingent

capital increase will only be implemented to the extent that the holders of convertible bonds

issued on the basis of the authorization by the Annual General Meeting to establish a stock

option plan exercise their conversion rights.

The stock option plan entitles the optionees – the Board of Management, Group senior

executives and management, as well as employees of Volkswagen AG covered by collective pay

agreements – to purchase options on shares of Volkswagen AG by subscribing for convertible

bonds at a price of €2.56 each. Each bond is convertible into ten ordinary shares.

The stock options are not accounted for until the exercise date. The conversion price then

received for the new shares is credited to subscribed capital or capital reserves.

The conversion prices and periods following expiration of the first three tranches are shown

in the following table. The information on the fourth tranche is presented as data for fiscal year

2007, although this tranche has now also expired.

276


€ 4th tranche 5th tranche 6th tranche 7th tranche 8th tranche

Base conversion price per share 51.52 36.54 38.68 37.99 58.18

Conversion price

as from June 19, 2004 56.67

as from publication of interim report for

Jan. – Sept. 2004 59.25

as from July 12, 2005 40.19


Jan. – Sept. 2005 61.82 42.02

as from July 10, 2006 42.55


Jan. – Sept. 2006 64.40 43.85 44.48

as from July 9, 2007 41.79


Jan. – Sept. 2007 45.68 46.42 43.69

as from July 8, 2008 64.00


Jan. – Sept. 2008 48.35 45.59 66.91


Jan. – Sept. 2009 47.49 69.82


Jan. – Sept. 2010 72.73

Beginning of conversion period June 19, 2004 July 12, 2005 July 10, 2006 July 9, 2007 July 8, 2008

End of conversion period June 11, 2007 July 4, 2008 July 2, 2009 July 1, 2010 June 30, 2011

The total value at December 31, 2007 of the convertible bonds issued at €2.56 per convertible

bond was €964,648.96 (= 376,816 bonds), conveying the right to purchase 3,768,160 ordinary

shares. The liabilities from convertible bonds are recognized under other liabilities. In fiscal

year 2007, 11,503 convertible bonds with a value of €29,447.68 were returned by employees

who have since left the Company. 435,720 conversion rights from the fourth, fifth, six and

seventh tranches with a nominal value of €1,115,443.20 have been exercised. 4,357,200 shares

with a notional value of €11,154,432.00 were thus issued.

Changes in the rights to stock options granted (fifth to eighth tranches) are shown in the

following table:

Nominal value of

convertible bonds

Number of conversion

rights

Number of potential

ordinary shares

€ Rights Shares

Balance at Jan. 1, 2007 2,109,539.84 824,039 8,240,390

Exercised in the fiscal

year 1,115,443.20 435,720 4,357,200

Returned in the fiscal

year 29,447.68 11,503 115,030

Balance at Dec. 31, 2007 964,648.96 376,816 3,768,160


>



(6) CAPITAL RESERVES

€ million Dec. 31, 2007 Dec. 31, 2006

5,142 4,942

The capital reserves comprise the share premium of a total of €4,816 million from the capital

increases, the share premium of €219 million from the issue of bonds with warrants, and an

amount of €107 million appropriated on the basis of the capital reduction implemented in the

previous fiscal year. The share premium from the capital increase resulting from the exercise of

conversion rights from the stock option plan increased the capital reserves by €200 million in

fiscal year 2007. No amounts were withdrawn from the capital reserves.

(7) REVENUE RESERVES

€ million Dec. 31, 2007 Dec. 31, 2006

Legal reserve 31 31

Other revenue reserves 4,491 3,771

4,522 3,802

In accordance with section 58(2) of the AktG, a total of €720 million was appropriated from net

income for the year to other revenue reserves.

(8) SPECIAL TAX-ALLOWABLE RESERVES

€ million Dec. 31, 2007 Dec. 31, 2006

Tax-free reserves 0 –

Accelerated tax depreciation 75 81

75 81

The accelerated tax depreciation at Volkswagen AG relates to write-downs in accordance with

section 3(2) of the Zonenrandförderungs-Gesetz (German Zonal Border Development Act),

section 6b of the Einkommensteuergesetz (EStG – German Income Tax Act)/section 35 of the

Einkommensteuerrichtlinien (EStR – German Income Tax Regulations), section 7d of the EStG

and section 82d of the Einkommensteuer-Durchführungsverordnung (EStDV – German Income

Tax Implementing Order).

There is a small amount of tax-free reserves in accordance with section 6b of the EStG and

section 35 of the EStR.

278


(9) PROVISIONS

€ million Dec. 31, 2007 Dec. 31, 2006

Provisions for pensions and similar obligations 8,850 8,019

Provisions for taxes 3,077 2,067

Other provisions 9,409 8,763

21,336 18,849

thereof: short-term (up to 1 year) 5,902 4,914

medium-term 6,593 5,628

long-term (over 5 years) 8,841 8,307

21,336 18,849

Among other items, other provisions include provisions for warranties (€2.9 billion), personnel

expenses (€2.6 billion mainly for long-service jubilees, partial retirement arrangements,

obligations under Time Assets and other workforce costs) and other selling expenses (€1.4

billion).

(10) LIABILITIES

€ million

Due

within 1 year

Total

Dec. 31, 2007

Total

Dec. 31, 2006

Due

within 1 year

Type of liability

Liabilities to banks 122 122 129 129

Payments received on account

of orders 88 88 50 50

Trade payables 1,367 1,367 1,209 1,209

Liabilities to affiliated companies 12,993 13,119 14,397 14,102

Liabilities to other investees

and investors 62 62 50 50

Other liabilities 604 837 583 378

thereof: taxes (62) (62) (8) (8)

social security (8) (8) (8) (8)

15,236 15,595 16,418 15,918


>



€1,828 million (previous year: €2,089 million) of the liabilities to affiliated companies and €29

million (previous year: €21 million) of the liabilities to other investees and investors relate to

trade payables. €11,020 million (previous year: €11,973 million) of the liabilities is interest-

bearing. €60 million (previous year: € – million) of other liabilities relates to liabilities due after

more than five years. Standard retention of title applies to the liabilities from deliveries of goods

contained in the amounts shown above.

Contingencies and commitments

Contingent liabilities

€ million Dec. 31, 2007 Dec. 31, 2006

Contingent liabilities from guarantees 129 124

Contingent liabilities from warranties 13,000 17,628

of which relating to affiliated companies (21) (21)

Granting of security for third-party liabilities 127 171

Total 13,256 17,923

Contingent liabilities from warranties relate primarily to guarantees given to creditors of

subsidiaries for bonds issued by these subsidiaries and related swap transactions entered into.

Other financial commitments

Loan commitments to subsidiaries result in financial obligations of approximately €2.3 billion

until no longer than 2012.

The financial obligations resulting from rental and leasing agreements amount to a total of

€555 million (previous year: €628 million), of which €106 million is due in 2008. Agreements

with a term of up to five years – with expenditures in 2008 amounting to €61 million (including

€16 million to affiliated companies) – are expected to account for a total of €135 million

(including €43 million to affiliated companies). For agreements with terms of up to 21 years, the

financial obligations over the entire remaining contractual term amount to approximately €420

million, including €89 million to affiliated companies (€44 million in 2008, including €11

million to affiliated companies).

Around 38 hectares of land (carrying amount €3 million) are encumbered by heritable

building rights.

In conjunction with the acquisition of a 100% interest in LeasePlan Corporation N.V. and

the subsequent sale of 50% of the interest to two co-investors, Volkswagen has granted the co-

investors put options that entitle the co-investors to sell their interests to Volkswagen. These put

options may be exercised (a) at any time and (b) if certain events occur within a defined period.

The price agreed for the interests was the greater of (a) the fair value of the interests as

280


determined by an expert using recognized valuation models, and (b) the original acquisition

price paid by the co-investors. The value of the option is determined using a recognized option

pricing model. The following key parameters were assumed: volatility (22%), risk-free rate

(4.1%) and growth factors derived from projections. It amounted to €– 26 million as of

December 31, 2007.

In the course of the formation of VW Rus, the co-investors were granted a put option that

entitles them to return their interest to VW Rus at cost plus an appropriate return after 6 years.

The option had a negative fair value of €– 30 million as of December 31, 2007. This amount was

recognized in other provisions due to the potential exercise of the option.

Sales guarantees totaling €1.7 billion up to 2013 were entered into in the course of the sale

of the gedas group; €0.4 billion of these relates to 2008.

In accordance with Art. 5(10) of the statutes of the Einlagensicherungsfonds (deposit

protection fund), Volkswagen AG has given an undertaking to indemnify Bundesverband

deutscher Banken e.V., Cologne, against any losses incurred that are attributable to measures

taken by it in favor of a majority-owned bank.

Volkswagen AG has liabilities from its investments in commercial partnerships.

The purchase commitment for capital expenditure projects is within the normal levels.

Derivatives

€ million Notional amount Fair value

Zeitwerte

Type and volume Dec. 31, 2007 Dec. 31, 2006 Dec. 31, 2007 Dec. 31, 2006

Interest rate swaps 2 2

negative fair values 0 0

Currency futures contracts 15,680 15,242 1,177 355

thereof: currency purchases 1,818 2,515

thereof: positive fair values 7 10

negative fair values – 134 – 51

Currency sales 13,862 12,727

thereof: positive fair values 1,326 518


Currency option contracts 4,470 6,412

Positive fair values 323 337

Commodity futures contracts 1,502 1,839

thereof: positive fair values 219 231


MEASUREMENT METHODS

The fair values of derivatives are determined on the basis of the market data provided by

recognized financial information service providers.


>



Balance sheet items and carrying amounts

Derivatives are contained in the following balance sheet items at the amounts shown:

€ million Carrying amount

Type Balance sheet item

Dec. 31,

2007

Dec. 31,

2006

Option premiums Other assets 93 156

Expected losses from open currency

forwards Other provisions 156 173

Expected losses from open

commodity future contracts Other provisions 8 29

Deferred interest from interest rate

swaps

Bank balances/

Liabilities to banks 0 0

Income Statement Disclosures

(11) SALES

€ million 2007 % 2006 %

by region

Germany 21,254 38.5 21,022 39.6

Europe (excl. Germany) 26,498 47.9 24,805 46.8

North America 3,092 5.6 2,997 5.7

South America 372 0.7 323 0.6

Africa 1,039 1.9 1,063 2.0

Asia-Pacific 2,963 5.4 2,826 5.3

Total 55,218 100.0 53,036 100.0

by segment

Vehicle sales 38,584 69.9 37,094 70.0

Genuine parts 3,889 7.0 3,780 7.1

Other sales 12,745 23.1 12,162 22.9

Total 55,218 100.0 53,036 100.0

Other sales relate primarily to intra-Group deliveries to our subsidiaries and to sales of

components and parts to third parties.

282


(12) OTHER OPERATING INCOME

€ million 2007 2006

Other operating income 3,443 2,844

thereof income from the reversal of special tax-allowable reserves (7) (7)

Other operating income relates primarily to cost allocations (€1.6 billion), exchange rate gains

relating to our deliveries of goods and services (€1.0 billion) and income from the reversal of

provisions (€0.4 billion).

(13) OTHER OPERATING EXPENSES

€ million 2007 2006

Other operating expenses 2,134 1,669

thereof appropriations to special tax-allowable reserves (1) (0)

Other operating expenses primarily relate to exchange rate losses from our deliveries of goods

and services, including the measurement of our foreign currency hedging transactions – in

accordance with the strict imparity principle (under which expected or unrealized losses must

be recognized, but the recognition of unrealized gains is prohibited) – (€0.9 billion) after

elimination against the provisions recognized in the previous year, and expenses for

subsidiaries that are allocated to these companies (€0.9 billion).

The insignificant amount of accelerated tax depreciation contained in appropriations to the

special tax-allowable reserves relates to fixed assets.

(14) FINANCIAL RESULT

€ million 2007 2006

Income and expenses from investments 4,321 5,472

Interest income and expense – 484 13

Other financial result 348 – 269

4,185 5,216


>



Income from investments primarily comprises income from Scania AB, VW Group Services S.A.,

VW China Investment, VW Logistics GmbH & Co. OHG, Volkswagen Group UK and our Chinese

joint ventures. Income from profit and loss transfer agreements (primarily from AUDI AG,

AutoVision GmbH, the VW Sachsen companies and VW Kraftwerk GmbH) also include

allocations of income-related taxes.

Other investment income relates almost exclusively to reversals of write-downs of the

carrying amount of the investment in VW do Brasil Ltda., income from the transfer of

companies to Global Mobility Holding B.V. and the reversal of a provision for guarantees from

the sale of the gedas group that was no longer required.

Other investment expenses mainly comprise provisions for expected obligations under a

profit and loss transfer agreement and for the possible exercise of a put option granted to the co-

investors.

Interest income and expense

€ million 2007 2006

Income from other investments and long-term loans 14 127

thereof from affiliated companies (6) (19)

Other interest and similar income 713 651

thereof from affiliated companies (271) (190)

Interest and similar expenses 1,211 765

thereof to affiliated companies (701) (596)

– 484 13

Interest income and expense includes expenses from the factoring business (financing of non-

interest-bearing trade receivables), primarily with our Group company Volkswagen Group

Services S. A. This item also includes income and expenses from interest rate hedges and

reversals of write-downs of the carrying amount of long-term investments and securities

classified as current investments.

Other financial result

€ million 2007 2006

Discount on tax credit – – 254

Gain/loss on sales of securities 348 – 15

348 – 269

Other taxes

The other taxes allocated to the consuming functions amounted to €31 million (previous year:

€31 million). They relate mainly to land and vehicle taxes.

284


NOTICES AND DISCLOSURE OF CHANGES REGARDING THE OWNERSHIP OF VOTING RIGHTS IN

VOLKSWAGEN AG IN ACCORDANCE WITH SECTION 21 AND SECTION 26 OF THE

WERTPAPIERHANDELSGESETZ (WPHG – GERMAN SECURITIES TRADING ACT)

Porsche

Dr. Ing. h.c. F. Porsche Aktiengesellschaft (now: Porsche Automobile Holding SE), Stuttgart,

Germany, notified us in accordance with section 21(1) of the WpHG that the share of voting

rights held by Dr. Ing. h.c. F. Porsche Aktiengesellschaft in Volkswagen Aktiengesellschaft,

Wolfsburg, Germany, exceeded the threshold of 30% on March 28, 2007 and amounted to

30.93% of the voting rights at this date (88,874,462 voting rights).

The following persons notified us in accordance with section 21(1) of the WpHG that their

share of the voting rights in Volkswagen AG in each case exceeded the threshold of 30% on






> Porsche GmbH, Stuttgart/Germany; Familien Porsche-Daxer-Piëch Beteiligung GmbH,

Stuttgart/Germany; Familie Porsche Beteiligung GmbH, Stuttgart/

Germany; Ferdinand Piëch GmbH, Grünwald/Germany; Hans-Michel Piëch GmbH,

Grünwald/Germany

(Dr. Ing. h.c. F. Porsche AG, Stuttgart/Germany),

> Louise Daxer-Piëch GmbH, Stuttgart/Germany; Ferdinand Alexander Porsche GmbH,

Stuttgart/Germany; Gerhard Porsche GmbH, Stuttgart/Germany


gung GmbH, Stuttgart/Germany),

> Hans-Peter Porsche GmbH, Stuttgart/Germany; Wolfgang Porsche GmbH, Stuttgart/Germany


gart/Germany),

> Louise Daxer-Piëch GmbH, Salzburg/Austria

(Dr. Ing. h.c. F. Porsche AG, Stuttgart/Germany; Familien Porsche-Daxer-Piëch Beteiligung

GmbH, Stuttgart/Germany; Louise Daxer-Piëch GmbH, Stuttgart/Germany),

> Prof. Ferdinand Alexander Porsche GmbH, Salzburg/Austria


gung GmbH, Stuttgart/Germany; Ferdinand Alexander Porsche GmbH, Stuttgart/

Germany),


>



> Gerhard Anton Porsche GmbH, Salzburg/Austria


gung GmbH, Stuttgart/Germany; Gerhard Porsche GmbH, Stuttgart/Germany),

> Ing. Hans-Peter Porsche GmbH, Salzburg/Austria


gart/Germany; Hans-Peter Porsche GmbH, Stuttgart/Germany),

> Mag. Josef Ahorner, Austria; Mag. Louise Kiesling, Austria; Prof. Ferdinand Alexander

Porsche, Austria; Prof. Ferdinand Alexander Porsche, Austria; Mark Philipp Porsche, Austria;

Kai-Alexander Porsche, Austria; Dr. F. Oliver Porsche, Austria; Gerhard Anton Porsche, Austria



Alexander Porsche GmbH, Stuttgart/Germany; Gerhard Porsche GmbH, Stuttgart/

Germany; Louise Daxer-Piëch GmbH, Salzburg/Austria; Prof. Ferdinand Alexander

Porsche GmbH, Salzburg/Austria; Gerhard Anton Porsche GmbH, Salzburg/Austria;

Ferdinand Porsche Holding GmbH, Salzburg/Austria; Ferdinand Porsche Privatstiftung,

Salzburg/Austria),

> Hans-Peter Porsche, Austria; Peter Daniell Porsche, Austria



sche GmbH, Salzburg/Austria; Familie Porsche Holding GmbH, Salzburg/Austria;

Familie Porsche Privatstiftung, Salzburg/Austria),

> Dr. Wolfgang Porsche, Germany


Stuttgart/Germany; Wolfgang Porsche GmbH, Stuttgart/Germany; Hans-Peter Porsche GmbH,

Stuttgart/Germany; Ing. Hans-Peter Porsche GmbH, Salzburg/Austria; Familie Porsche

Holding GmbH, Salzburg/Austria; Familie Porsche Privatstiftung, Salzburg/Austria),

> Ferdinand Porsche Privatstiftung, Salzburg/Austria





Salzburg/Austria; Gerhard Anton Porsche GmbH, Salzburg/Austria; Ferdinand Porsche

Holding GmbH, Salzburg/Austria),

286


> Ferdinand Porsche Holding GmbH, Salzburg/Austria





Salzburg/Austria; Gerhard Anton Porsche GmbH, Salzburg/Austria),

> Familie Porsche Privatstiftung, Salzburg/Austria


Stuttgart/Germany; Hans-Peter Porsche GmbH, Stuttgart/Germany; Ing. Hans-Peter

Porsche GmbH, Salzburg/Austria; Familie Porsche Holding GmbH, Salzburg/Austria),

> Familie Porsche Holding GmbH, Salzburg/Austria



sche GmbH, Salzburg/Austria),

> Dipl.-Ing. Dr. h.c. Ferdinand Piëch GmbH, Salzburg/Austria


Germany),

> Dr. Hans Michel Piëch GmbH, Salzburg/Austria

(Dr. Ing. h.c. F. Porsche AG, Stuttgart/Germany; Hans Michel Piëch GmbH, Grünwald/

Germany) and

> Dr. Ferdinand Piëch, Austria


Germany; Dipl.-Ing. Dr. h.c. Ferdinand Piëch GmbH, Salzburg/Austria).


>



The following persons notified us in accordance with section 21(1) of the WpHG that their share

of the voting rights in Volkswagen AG in each case also exceeded the threshold of 30% on






> Porsche GmbH, Salzburg/Austria

(Dr. Ing. h.c. F. Porsche AG, Stuttgart/Germany; Porsche GmbH, Stuttgart/Germany) and

> Porsche Holding Gesellschaft m.b.H., Salzburg/Austria

(Dr. Ing. h.c. F. Porsche AG, Stuttgart/Germany; Porsche GmbH, Stuttgart/Germany;

Porsche GmbH, Salzburg/Austria).

Dr. Hans Michel Piëch, Austria, notified us in accordance with section 21(1) of the WpHG that

his share of the voting rights in Volkswagen AG also exceeded the threshold of 30% on

March 28, 2007 and amounted to 30.94% (88,886,932 votes) at this date. Of this, 30.93% of

the voting rights (88,874,462 voting rights) is attributable to him in accordance with section

22(1) sentence 1 no. 1 of the WpHG. The voting rights attributable to him are held via the

following companies controlled by him, whose share of the voting rights in Volkswagen AG

amounts to 3% or more in each case:

> Dr. Ing. h.c. F. Porsche AG, Stuttgart/Germany; Hans Michel Piëch GmbH, Grünwald/

Germany; Dr. Hans Michel Piëch GmbH, Salzburg/Austria.

288


State of Lower Saxony

Hannoversche Beteiligungsgesellschaft mbH, Hanover, Germany, notified us in accordance

with section 41(4a) of the Wertpapierhandelsgesetz (WpHG – German Securities Trading Act)

that it held 20.19% of the voting rights (corresponding to 57,953,870 voting shares) of

Volkswagen AG, Wolfsburg, Germany, on January 20, 2007.

The State of Lower Saxony, Hanover, Germany, notified us in accordance with section 41(4a)

of the WpHG (German Securities Trading Act) that it held 20.26% of the voting rights

(corresponding to 58,155,310 voting shares) of Volkswagen AG, Wolfsburg, Germany, on

January 20, 2007. Of this amount, 20.19% (corresponding to 57,953,870) of the voting rights

are attributable to the State of Lower Saxony via Hannoversche Beteiligungsgesellschaft mbH,

Hanover, Germany, in accordance with section 22(1) sentence 1 no. 1 of the WpHG.

The State of Lower Saxony also notified us on January 28, 2008 that it held a total of

58,522,310 ordinary shares as of December 31, 2007. It held 440 VW ordinary shares directly

and 58,521,870 ordinary shares indirectly via Hannoversche Beteiligungsgesellschaft mbH

(HanBG), which is owned by the State of Lower Saxony.

RECONCILIATION OF NET INCOME TO NET RETAINED PROFITS

€ million 2007 2006


Retained profits brought forward 10 11

Income from capital reduction – 107

Appropriations to revenue reserves

to other revenue reserves – 720 – 450

Appropriation to capital reserves under the provisions governing the

simplified capital reduction – – 107


TOTAL EXPENSE FOR THE PERIOD

Cost of materials

€ million 2007 2006

Cost of raw materials, consumables and supplies,

and of purchased merchandise 42,683 40,317

Cost of purchased services 2,195 2,082

44,878 42,399


>



Personnel expenses

€ million 2007 2006

Wages and salaries 4,686 6,883

Social security and other pension costs 2,206 1,518

thereof in respect of old age pensions (1,288) (621)

6,892 8,401

OTHER DISCLOSURES

The tax expense is attributable to the result from ordinary activities.

Net income for the year improved as a result of tax measures in 2007 and in previous years.

These relate primarily to the reversal of special reserves for accelerated tax depreciation.

Without these measures, net income would have been approximately €4 million lower. In the

following year, the planned reversal of special reserves will probably result in a positive effect on

net income amounting to approximately €5 million. Expenses attributable to other fiscal years,

primarily for warranties, amounted to €355 million (previous year: €403 million). Prior-period

income amounts to €481 million (previous year: €539 million). This relates in particular to

income from the reversal of provisions recognized in previous years and contained in other

operating income.

WRITE-DOWNS

€ million 2007 2006

of tangible assets – 45

of long-term financial assets

affiliated companies 364 1,164

other equity investments – 1

364 1,210

290


AVERAGE NUMBER OF EMPLOYEES OF VOLKSWAGEN AG DURING THE YEAR

2007 2006

by group

Performance-related wage-earners 45,477 50,896

Time-rate wage-earners 19,967 19,410

Salaried employees 27,000 27,454

92,444 97,760

Apprentices 4,011 4,052

96,455 101,812

by plant

Wolfsburg 49,436 51,676

Hanover 13,108 14,447

Braunschweig 5,734 6,099

Kassel 13,861 14,543

Emden 7,946 8,382

Salzgitter 6,370 6,665

96,455 101,812


>



AUDITORS' FEES

The following amounts were recognized as expenses in fiscal year 2007 for:

€ 2007

Audit services 1,756,017

Other assurance or valuation services 2,115,278

Tax advisory services 120,729

Other services 273,017

4,265,041

Information about the composition of the Board of Management and the Supervisory Board, on

changes in these executive bodies and on the memberships of members of the Board of

Management and the Supervisory Board of other statutory supervisory boards and comparable

supervisory bodies is contained on pages 108 to 111 of this report.

REMUNERATION OF THE BOARD OF MANAGEMENT AND THE SUPERVISORY BOARD

€ 2007 2006

Board of Management remuneration

Non-performance-related remuneration 4,810,736 5,009,987

Performance-related remuneration 10,850,000 8,210,000

Stock options exercised or subscribed 837,150 546,950

Fair value of stock options held at reporting date 7,950,150 1,929,950

Supervisory Board remuneration

Fixed remuneration components 307,192 306,142

Variable remuneration components 3,968,975 2,537,125

Loans to Supervisory Board members 21,218 18,160

The fixed remuneration of the Board of Management also includes differing levels of

remuneration for the assumption of appointments at Group companies, as well as non-cash

benefits, which consist in particular of the use of company cars and the grant of insurance

cover. The additional annual variable amount paid to each member of the Board of

Management contains annually recurring components that are tied to the business success of

the Company. It is primarily oriented on the results achieved and the financial position of the

Company.

On December 31, 2007 the pension provisions for members of the Board of Management

amounted to €19,815,224 (previous year: €13,577,681). Current pensions are index-linked in

accordance with the index-linking of the highest collectively agreed salary insofar as the

292


application of section 16 of the Gesetz zur Verbesserung der betrieblichen Altersversorgung

(BetrAVG – German Company Pension Act) does not lead to a larger increase.

Retired members of the Board of Management and their surviving dependents received

€8,688,685 (previous year: €10,189,421). Provisions for pensions for this group of people were

recognized in the amount of €88,203,403 (previous year: €87,049,172). The members of the

Board of Management are entitled to the retirement pension in the event of disability, and to

payment of their normal remuneration for six months in the event of illness. Surviving

dependents receive a widow’s pension of 66 2/3% and 20% orphan’s pension per child – but no

more than a maximum of 100% – based on the pension of the former member of the Board of

Management.

The individual remuneration of the members of the Board of Management and the

Supervisory Board is explained in the Remuneration Report in the Management Report (see

page 100).

Loans totaling €21,218 (redemption in 2007: €17,778) have been granted to members of the

Supervisory Board. The loans generally bear interest at 4%; the agreed term is up to 12.5 years.




DIVISIONS COR PORATE GOVERNANC E MANAGEMENT R EPORT F I NANC IAL STATEMENTS 2007 ADDITIONAL I N FORM ATION 293

>>



To the best of our knowledge, and in accordance with the applicable reporting principles, the

annual financial statements give a true and fair view of the assets, liabilities, financial position

and profit or loss of Volkswagen AG, and the management report includes a fair review of the

development and performance of the business and the position of the Company, together with a

description of the principal opportunities and risks associated with the expected development of

the Company.






Responsibility Statement

294


We have audited the annual financial statements, comprising the balance sheet, the income

statement and the notes to the financial statements, together with the bookkeeping system, and

the management report, which is combined with the group management report of

VOLKSWAGEN AKTIENGESELLSCHAFT, Wolfsburg, for the business year from January 1 to

December 31, 2007. As required by Article 10 (4) EnWG ("Energiewirtschaftsgesetz", "German

Energy Industry Law"), the audit also included the company's observance of obligations for the

unbundling of internal accounting pursuant to Article 10 (3) EnWG. The maintenance of the

books and records and the preparation of the annual financial statements and the combined

management report in accordance with German commercial law as well as the observance of

the obligations pursuant to Article 10 (3) EnWG are the responsibility of the Company’s Board of

Management. Our responsibility is to express an opinion on the annual financial statements,

together with the bookkeeping system, [and the combined management report],and on the

internal accounting pursuant to Article 10 (3) EnWG based on our audit.

We conducted our audit of the annual financial statements in accordance with § (Article) 317

HGB ("Handelsgesetzbuch": "German Commercial Code") and German generally accepted

standards for the audit of financial statements promulgated by the Institut der

Wirtschaftsprüfer (Institute of Public Auditors in Germany) (IDW). Those standards require that

we plan and perform the audit such that misstatements materially affecting the presentation of

the net assets, financial position and results of operations in the annual financial statements in

accordance with (German) principles of proper accounting and in the combined management

report are detected with reasonable assurance and to obtain reasonable assurance about

whether, in all material respects, the obligations pursuant to Article 10 (3) EnWG have been

observed. Knowledge of the business activities and the economic and legal environment of the

Company and expectations as to possible misstatements are taken into account in the

determination of audit procedures. The effectiveness of the accounting-related internal control

system and the evidence supporting the disclosures in the books and records, the annual

financial statements and the combined management report, as well as in the internal

accounting pursuant to Article 10 (3) EnWG are examined primarily on a test basis within the

framework of the audit. The audit includes assessing the accounting principles used and

significant estimates made by the Company’s Board of Management, as well as evaluating the

overall presentation of the annual financial statements and the combined management report,

and assessing whether the amounts stated and the classification of accounts in the internal

accounting pursuant to Article 10 (3) EnWG are appropriate and comprehensible and whether

the principle of consistency has been observed. We believe that our audit provides a reasonable

basis for our opinion.

Our audit has not led to any reservations.

Auditors’ Report


>



In our opinion based on the findings of our audit, the annual financial statements comply with

the legal requirements and give a true and fair view of the net assets, financial position and

results of operations of the Company in accordance with (German) principles of proper

accounting. The combined management report is consistent with the annual financial

statements and as a whole provides a suitable view of the Company's position and suitably

presents the opportunities and risks of future development.

The audit of the observance of obligations for the unbundling of internal accounting

pursuant to Article 10 (3) EnWG has not led to any reservations.

Hanover, February 19, 2008

PricewaterhouseCoopers

Aktiengesellschaft

Wirtschaftsprüfungsgesellschaft

Prof. Dr. Norbert Winkeljohann Harald Kayser

Wirtschaftsprüfer Wirtschaftsprüfer

296

Fuel consumption (I/100km)

Model Output

kW (PS) urban extra-urban combined

CO2 emissions

(g/km)

Audi RS 6 Avant 426 (580) 20.4 10.3 14.0 333

Bentley Azure 336 (456) 28.8 14.1 19.5 465

Bentley Brooklands 395 (537) 28.8 14.1 19.5 465

Bentley Continental Flying Spur 411 (560) 26.2 11.9 17.1 410

Bentley Continental GT Coupé 412 (560) 25.3 11.6 16.6 396

Bentley Continental GT Cabrio 411 (560) 26.2 11.9 17.1 410

Bentley Continental GT Speed Coupé 449 (610) 25.3 11.6 16.6 396

Lamborghini Gallardo Coupé 382 (520) 24.8 12.4 17.0 400

Lamborghini Gallardo Spyder 382 (520) 24.8 12.4 17.0 400

Lamborghini Gallardo Superleggera 390 (530) 24.8 12.4 17.0 400

Lamborghini Murciélago LP 640 471 (640) 32.3 15.0 21.3 495

Lamborghini Murciélago LP 640 Roadster 471 (640) 32.6 15.1 21.3 500

SEAT Leon Cupra R 177 (240) 11.4 6.5 8.3 199

VW Caddy EcoFuel 80 (109) 8.2* 4.7* 6.0* 157

VW Polo BlueMotion 59 (80) 4.9 3.2 3.8 99

VW Golf BlueMotion 77 (105) 5.8 3.8 4.5 119

VW Golf Plus BlueMotion 77 (105) 6.1 4.1 4.8 127

VW Golf Variant BlueMotion 77 (105) 5.9 3.9 4.6 122

VW Jetta BlueMotion 77 (105) 5.9 3.9 4.6 122

VW Touran BlueMotion 77 (105) 7.0 4.7 5.4 144

VW Touran EcoFuel 80 (109) 8.1* 4.5* 5.8* 155

VW Passat BlueMotion 77 (105) 6.7 4.2 5.1 136

VW Passat Variant BlueMotion 77 (105) 6.8 4.4 5.2 137

* In kg/100 km.

Consumption and Emission Data


>

>

Consumption and Emission Data Glossary Index Contact Information

SELECTED TERMS AT A GLANCE

Adaptive Cruise Control (ACC)

Enhanced cruise control system incorporating a distance control

function that uses radar sensors. ACC additionally identifies potential

accident risks and activates the brakes as a precaution.

ASEAN

(Association of Southeast Asian Nations) An international organization

established on August 8, 1967 consisting of Southeast Asian states with

political, economic and cultural objectives.

Benchmarking

Comparative analysis of the products, services, processes, or financial

data of a company with those of the leading competitors in an industry.

CCS

An efficient drivetrain and fuel system that combines the advantages of

diesel and petrol engines and uses the newest generation of fuels.

Corporate Governance

International term for responsible corporate management and

supervision driven by long-term value added.

Direct shift gearbox (DSG)

Gearbox that consists of two gearboxes with a dual clutch and so

combines the agility, driving pleasure and low consumption levels of a

manual gearbox with the comfort of an automatic.

Fair value

Fair value is the amount for which an asset could be exchanged, or a

liability settled, between knowledgeable, willing parties in an arm's

length transaction.

Hybrid drive

Drive combining two different types of engine and energy storage

system (usually an internal combustion engine and an electric motor).

Modular Longitudinal (MLB) platform

The use of a modular strategy in vehicle platforms in which the

drivetrain is mounted longitudinally to the direction of travel. This

modular arrangement of all components enables maximal synergies to

be achieved between the vehicle families.

Modular Transverse Matrix (MBQ) platform

The use of a modular strategy in vehicle platforms in which the

drivetrain is mounted transversely to the direction of travel.

Rating

Systematic evaluation of companies in terms of their creditworthiness.

Ratings are expressed by means of rating classes, which are defined

differently by the individual rating agencies.

SUV

Sports Utility Vehicle

Turntable concept

Concept of flexible manufacturing enabling the production of different

models in variable daily volumes within a single plant, as well as

offering the facility to vary daily production volumes of one model

between two or more plants.

Value drivers

Factors and measures that determine the earnings and value of a

company. The efficiency of a company's value drivers can be measured

by means of financial and non-financial performance indicators.

Glossary

298

A

Accounting policies 190

Annual General Meeting 105, 126

B

Balance sheet by division 131

Balance sheet of Volkswagen AG 142

Basis of consolidation 185

C

Cash and cash equivalents 134

Cash flow 133, 174

Cash flow statement by division 133

Consolidation methods 189

Corporate Governance 8, 96, 256

Cost of capital 140

D

Declaration by the Board of Management 177

Declaration of conformity 8, 96

Deliveries 117, 172

Demand for passenger cars 115, 164, 171

Dividend proposal 143

Dividend yield 123

E

Earnings per share 123, 206

Economic growth 116

Employee pay and benefits 143

Employees 154, 165

Environmental protection 144, 157, 165

Exchange rate movements 115

Executive Bodies 108

F

Financial position 134

Five-year review 139

Foreign currency risk 168

G

General economic development 114, 163, 170

Group structure 104

H

Health status 157

I

Income statement by division 135

Income statement of Volkswagen AG 142

Inventories 121

Investment and financial planning 174

K

Key financial figures 137

L

Legal cases 167

M

Market shares 118, 172

Models 116, 119, 172

N

New issues 128

Non-financial performance indicators 146

Number of employees 121, 144

O

Operating result 79, 135

Orders received 120

P

Procurement 149, 164

Production 151, 164

Production figures 81, 83, 85, 87, 89, 91,

121, 144

Proposal on the appropriation

of net profit 143

Prospects 176

Purchasing volume 144, 150

Q

Quality assurance 153, 165

R

Ratings 92, 129, 168

Remuneration Report 100, 257

Report on post-balance

sheet date events 169

Research and development 146, 164, 171

Research and development costs 144, 149

Result by brand and business field 79

Result by market 79

Risk management 98, 162

S

Sales 120, 144

Sales revenue by brand

and business field 79, 199

Sales revenue by market 79, 199

Segment reporting 198

Share key figures 125

Share of sales revenue by market 136

Share price movement 122, 123

Shareholder structure 124

Significant Group companies 258

Stock option plan 123, 223

Summary 121, 138, 175

Supplier management 149

V

Value added 138

Value-based management 140, 175

Value contribution 141

Vehicle sales 152

Index


> >

Consumption and Emission Data Glossary Index Contact Information

PUBLISHED BY

Volkswagen AG

Finanzpublizität

Brieffach 1848-2

38436 Wolfsburg

Germany

Phone +49 5361 9-0

Fax +49 5361 9-28282

Volkswagen AG

Konzern Kommunikation

Brieffach 1970

38436 Wolfsburg

Germany

Phone +49 5361 9-0

Fax +49 5361 9-28282

This Annual Report is published in English and German.

Both versions of the Report are available on the Internet at:


INVESTOR RELATIONS

Volkswagen AG

Investor Relations

Brieffach 1849

38436 Wolfsburg

Germany

Phone +49 5361 9-86622 IR Hotline

Fax +49 5361 9-30411

E-mail [email protected]

Internet www.volkswagenag.com/ir

Volkswagen AG

Investor Relations

17C Curzon Street

London W1J 5HU

United Kingdom

Phone +44 20 7290 7820

Fax +44 20 7629 2405

Volkswagen Group of America, Inc.

Investor Relations Liaison Office

(Questions relating to American Depositary Receipts)

Box OP / 4M01

3800 Hamlin Road

Auburn Hills, Michigan 48326

USA

Phone +1 248 754 5000

Fax +1 248 754 6405

Contact Information


300

Contact Information

CO N CE P T, D ES I G N A N D R E A L IZ AT I O N

3st kommunikation, Mainz

E D ITO R I A L | M AG A Z I N E S EC T I O N “ D R I V I N G I D E A S .”

Coram Publico, Hamburg

Dr. Olaf Ihlau, Journalist

Jürgen Lewandowski, Journalist

Dirk Maxeiner, Journalist

PH OTO G R A PH Y | P I C T U R E CRE D IT S

acatech study “Mobility 2020” (p. 30)

Corbis (p. 33, p. 64-65)

PHOTO FINDER (p. 60)

Getty Images (p. 33, p. 50-51, p. 53, p. 58, p. 60, p. 62-63)

Heinrich Huelser pictureservice (p. 26-27, p. 29)

Claudia Kempf (p. 10, p. 12-13)

Karsten Koch (p. 33, p. 42-45)

Hartmut Nägele (p. 68-71)

Boris Rössler (p. 46-49)

Manfred Zimmermann, EuroMediaHouse (p. 14-17, p. 34-37, p. 72-75)

Volkswagen AG

P R I N T E R

druckpartner Druck- und Medienhaus, Essen

PA PE R

Heaven 42, Papierfabrik Scheufelen, Lenningen

ISSN 0944-9817 / 858.809.505.20

Printed in Germany

Cert no. IMO-COC-027827

www.3st.de

Scheduled dates 2008

MOTO R SH OWS

> M A RCH 6 – 16 International Motor Show, Geneva

> A PRI L 5 – 13 Auto Mobil International, Leipzig

> A PRI L 24 – 28 Auto China, Beijing

> M AY 24 – J U N E 1 Salón Internacional del Automóvil, Madrid

> JULY 13 – 22 Changchun Car Show, Changchun

> AUGUST 30 – SEP TEMBER 7 Caravan Salon, Düsseldorf

> SEP TEMBER 16 – 21 Automechanika, Frankfurt

> SEP TEMBER 25 – O C TO B E R 2 I A A Commercial Vehicles, Hanover

> O C TO B E R 4 – 19 Paris Motor Show, Paris

> N OV EM B E R 21 – 30 Los Angeles Auto Show, Los Angeles

> N OV EM B E R 29 – D ECEM B E R 7 Essen Motor Show, Essen

> D ECEM B E R 6 – 14 Bologna Motor Show

FINANCIAL C ALENDAR

> M A RCH 13, 20 08 Volkswagen AG Annual Press Conference

> M A RCH 13, 20 08 International Investor Conference

> A PRI L 24, 20 08 Volkswagen AG Annual General Meeting (Congress Center Hamburg)

> A PRI L 30, 20 08 Interim Report January – March

> JULY 23, 20 08 Interim Report January – June

> O C TO B E R 30, 20 08 Interim Report January – September

s

– 30 Auto Show, Los Angeles

B E R 29 – D ECEMB ER 7tor Show, Essen

R 6 – 14 a Motor Show

rim Report J

June 3

25 millionth Golf celebrations

The production of the 25 millionth Golf is celebrated in style with an employee festival at the plant in Wolfsburg, events in the Autostadt and a huge Golf Gala in the Volkswagen Arena.

June 8

25 years of Volkswagen in China

The signature of a trial assembly contract on June 8, 1982 marked the begin-ning of the Volkswagen Group’s involvement in China.

June 9

SEAT world premiere at the International Motorshow in Barcelona

The SEAT brand presents the new SEAT Altea Freetrack at the International Motor-show in Barcelona.

June 18

Volkswagen receives certificate for pioneering environmentally responsi-ble strategy

This award means that Volkswagen is the first automobile manufacturer in the world to offer a series vehicle certified by the German Federal Bureau of Motor Vehicles and Drivers (KBA) featuring a minimum of 85 % recyclability and 95 % overall recoverability.

May 9

Volkswagen and Audi win the “International Engine of the Year Awards 2007”

A jury composed of around 60 motor industry journal-ists from over 25 countries again single out Volkswa-gen’s TSI engine and Audi’s TFSI engine for praise.

May 16

Volkswagen Group Awards

Volkswagen honors the Group’s top 25 suppliers in the categories: develop-ment expertise, logistics, product quality, environ-mental protection and business performance.

April 20

“Flotten-Award 2007” (2007 Fleet Awards): 10 gold medals for Volkswagen

With ten first places, the Volkswagen Group was once again the most suc-cessful company at the 2007 Fleet Awards. Well over 5,000 readers of the industry journal “Auto-flotte” cast their vote.

April 27

New TSI engine and new direct shift gearbox

At the International Vienna Motor Symposium, Volkswagen continues its powertrain offensive by presenting a new TSI petrol engine and the world’s first seven-speed direct shift gearbox in the compact and mid-size ranges.

March 6

International Motor Show, Geneva

Volkswagen presents one of the most fuel-efficient mid-range vehicles: the Passat BlueMotion. The new Audi A5 series makes its debut. Škoda presents the world premiere of the new Fabia.

March 14

Volkswagen Bank GmbH is the “best automotive bank”

The readers of “auto motor und sport” vote Volkswagen Bank GmbH as the “best automotive bank of the year”. It is Europe’s largest automotive bank and has a full banking license.

February 1

Group vehicles successful in “Best Cars of 2007” vote

The readers of the magazine “auto motor und sport” choose the “Best Cars of 2007”. The Volkswagen Group collects five out of ten awards.

February 14

8 million Volkswagen engines from Chemnitz

The eight millionth Volks-wagen engine from Saxony rolls off the production line in Chemnitz. The engine plant has built state-of-the-art engines, including FSI and TDI engines, since series production began in 1988.

J U N EM AYA P R I LM A R C HF E B R UA R YJ A N UA R Y

January 18

Volkswagen scores in ADAC readers’ “2007 Golden Angel” award

The Volkswagen Group receives awards in the

“Car”, “Innovation” and “Brand” categories.

January 22

Volkswagen and Motor Distributors Ltd. agree to set up new import company “Volkswagen Group Ireland”

Volkswagen AG and their importer in Ireland, Motor Distributors Ltd. (MDL), agree to transfer responsi-bility to the Volkswagen Group.

Chronicle 2007

D E C E M B E R

December 10

Group Environment Conference

Over 100 environmental experts from the Volks-wagen Group brands meet in Wolfsburg to exchange experiences. “Corporate success through environ-mental protection” is the motto of the 3rd Group Environment Conference.

November 7

Golden Steering Wheel award for Tiguan, Audi A4 and Škoda Fabia

The “Bild am Sonntag” jury awards three Group models the 2007 Golden Steering Wheel award: the Volkswagen Tiguan, the Audi A4 and the Škoda Fabia.

November 9

Volkswagen celebrates 15 millionth Passat

The 15 millionth Passat built worldwide rolls off the production line in Emden and is donated to the organizers of the German bone marrow donation registry (DKMS).

November 14

Los Angeles Motor Show with numerous world-exclusive Volkswagen innovations

At the Los Angeles Motor Show, Europe’s largest automobile manufacturer presents, among others, the third concept car in the New Small Family – the first member of this family with an electric drive sys-tem.

November 30

World premiere of the Audi A3 Cabriolet in Hungary

The Audi A3 Cabriolet is now the third model rolling off the production line at Audi Hungaria. Hungarian Prime Minister Ferenc Gyurcsány was also on stage at the presentation of the sporty vehicle with a classic fabric top.

September 7

Volkswagen returns to the Dow Jones Sustainability World Index

Volkswagen qualifies for the Dow Jones Sustainability World Index. In particular, activities in the areas of efficient diesel technology, fuel and drivetrain strategy, as well as supplier relation-ships and corporate citizen-ship, are positively rated.

September 15

Autostadt welcomes 15 millionth visitor

The Volkswagen Group’s theme park welcomes its 15 millionth visitor since it opened in 2000.

September 28

Volkswagen at the IAA: Product rollout with eight world premieres

In addition to the new Tiguan and the up! study, Volkswagen presents six new BlueMotion models at the Frankfurt International Motor Show.

August 27

ÖkoGlobe 2007: Volkswagen has “the best disposal strategy”

Insurance company DEVK awards Volkswagen the “ÖkoGlobe 2007” for its end-of-life vehicle recycling program, which is particu-larly environmentally- and resource-friendly.

N O V E M B E R

July 9

Autostadt in Wolfsburg delivers one millionth Volkswagen

Opened in June 2000, the Autostadt in Wolfsburg welcomes Volkswagen cus-tomers from throughout Germany and neighboring countries. One in three Volkswagen customers in Germany now collects their new car here.

O C TO B E RS E P T E M B E RA U G U S TJ U LY

October 5

“60 years of the VW Bus” at Volkswagen Commercial Vehicles

Volkswagen Commercial Vehicles celebrates the 60th anniversary of the legendary VW Bus, which in its numerous variants has already been sold more than ten million times all over the world.

October 11

Volkswagen acquires an interest in biofuel company CHOREN

Volkswagen AG and Daim-ler AG acquire a minority interest in Freiberg-based CHOREN Industries GmbH. The aim of the cooperation is to sustainably produce second-generation biofuels in Germany.

October 12

Award for the best apprentices

The Volkswagen Group presents its “Best Appren-tice Award 2007” in Mladá Boleslav to its best appren-tices worldwide.

October 24

World premiere of the space up! study at the Tokyo Motor Show

Just six weeks after the world premiere of the up ! at the IAA in Frankfurt, Volkswagen unveils the next member of the “New Small Family” at the Tokyo Motor Show: the space up ! study.